Strategic Management Report on ITC Tobacco

2. ITC
Strategic Management 2
ITC Industry Analysis
12/20/2016
Group 2
Maria Khatoon (PGFA1528)
Monika Trivedi (PGFA1529)
Rupali Singh (PGFA1543)
Shilpee (PGFA1549)

3. Contents
ITC Limited................................................................................................................................... 4
Products and Brands:............................................................................................................. 4
Vision and Mission................................................................................................................... 5
Industry Type: - ITC tobacco industry ............................................................................................. 6
THE INDIAN TOBACCO MARKET..................................................................................................... 8
Cigarette Industry in India............................................................................................................15
Indian Leaf Tobacco industry........................................................................................................20
Evolution of Tobacco Industry ......................................................................................................21
Characteristics of Tobacco industry:.........................................................................................24
The Business Model..............................................................................................................24
Tobacco Industry in India:.............................................................................................................25
Export and key market: .........................................................................................................26
Challenges impactingAgriculture and Agri business:......................................................................29
Specific issues faced due to Globalization:.................................................................................31
Towards a sustainable globalization?.........................................................................................33
Industry Structure......................................................................................................................34
Specialty of the Industry............................................................................................................36
3 Reasons Why Tobacco Is the Most ‘Successful’ Industry in History ................................36
Driving Forces ...........................................................................................................................38
Key Success Factors ................................................................................................................38
Business Risk Assessment...................................................................................................40
Financial Risk Assessment...................................................................................................40
The Indian tobacco industry......................................................................................................40
Industry Players...........................................................................................................................45
Awards ..............................................................................................................................46
Other competitors.......................................................................................................................47

4. ITC Limited
ITC Limited or ITC is an Indian conglomerate headquartered in Kolkata, West
Bengal. Its diversified business includes five segments:
 Fast-Moving Consumer Goods (FMCG)
 Hotels
 Paperboards & Packaging
 Agri Business
 Information Technology
 Tobacco
Products and Brands:
1. Cigarette
ITC Ltd sells 80 percent of the cigarettes in India, where 275 million people use
tobacco products and the total cigarette market is worth close to $6 billion (around
Rs.65,000 Crore)
ITC's major cigarette brands include Wills Navy Cut, Gold Flake Kings, Gold Flake
Premium lights, Gold Flake Super Star, Insignia, India Kings, Classic (Verve,
Menthol, Menthol Rush, Regular, Citric Twist, Mild & Ultra Mild), 555, Silk Cut,
Scissors, Capstan, Berkeley, Bristol, Lucky Strike, Players, Flake and Duke & Royal.
2. Other Businesses
Foods: ITC's major food brands include Kitchens of India; Aashirvaad, Mint-o, gum-
o, B natural, Sun feast, Candy man, Bingo! And Yippee! ITC is India's largest seller
of branded foods with sales of over Rs. 4,600 Crore in 2012-13. It is present across 5
categories in the Foods business namely Staples, Snack Foods, Ready-To-Eat
Foods, Juices and Confectionery.
Lifestyle apparel: ITC sells its products under the Wills Lifestyle and John Players
brands. Wills Lifestyle was accorded the ‘Super brand’ status and John Players was
included in the top 10 ‘Most Trusted Apparel Brands 2012’ by The Economic Times.
Personal care products: Perfumes, hair care and skincare categories. Major brands
are Fiama Di Wills, Vivel, Essenza Di Wills, Superia and Engage.

5. Stationery: Brands include Classmate, Paper Kraft and Color Crew. Launched in
2003, Classmate went on to become India's largest notebook brand in 2007.
Safety Matches and Agarbattis: Ship, i Kno and Aim brands of safety matches and
the Mangaldeep brand of agarbattis (Incense Sticks).
Hotels: ITC's Hotels division (under brands including WelcomHotel) is India's second
largest hotel chain with over 90 hotels throughout India. ITC is also the exclusive
franchise in India of two brands owned by Sheraton International Inc. Brands in the
hospitality sector owned and operated by its subsidiaries include Fortune Park Hotels
and Welcome Heritage Hotels
Paperboard: Products such as specialty paper, graphic and other paper are sold
under the ITC brand by the ITC Paperboards and Specialty Papers Division like
Classmate product of ITC well known for their quality.
Packaging and Printing: ITC's Packaging and Printing division operates
manufacturing facilities at Haridwar and Chennai and services domestic and export
markets.
Information Technology: ITC operates through its fully owned subsidiary ITC
InfoTech India Limited, which is a SEI CMM Level 5 company.
Vision and Mission
THE ITC 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.
THE ITC MISSION »
 To enhance the wealth generating capability of the enterprise in a globalising
environment,

6.  Delivering superior and sustainable stakeholder value.
Objectives:
 To build relationship with customer based on trust and mutual benefit
 To uphold highest ethical standard in conduct of our business
 We create the nurture a culture that supports flexibility, learning and its
proactive to change
 To chart a challenging career for employees with opportunities for
advancement and rewards
 To value the opportunity and responsibility to make a difference in people’s
lives
Industry Type: - ITC tobacco industry
The tobacco industry is one of the most profitable industries in the world. Tobacco
companies use their enormous wealth and influence both locally and globally to
market their deadly products. Even as advocacy groups and policy makers work to
combat the tobacco industry’s influence, new and manipulative tactics are used by
tobacco companies and their allies to circumvent tobacco control efforts.
It is important for tobacco control advocates to know which companies are present in
their country, how and where they operate, the types and quantity of products sold,
and marketing tactics used to sell tobacco products. By being informed about all
aspects of the tobacco industry within a country, advocates are better equipped to
fight for effective tobacco control policies. It is important to note that the tobacco
companies typically report market data annually at least several months after the end
of the fiscal year. By its nature, annual market data reported by analysts and tobacco
companies are one or two years old. It is also important to note that information
about the tobacco industry in India is not always readily available. This is particularly
true for the loosely regulated bidi and smokeless sectors. Therefore, general trends,
forecast data, and tobacco industry positioning within the market contained here are

7. the most recent we are able to obtain from tobacco analysts, Euro monitor
International, and other sources.
In India, the tobacco industry is divided into three distinct and powerful sectors: bidis
(smoking products hand-rolled in tendu leaves), smokeless tobacco (mainly chewing
tobacco) and cigarettes. Bidis are the most popular tobacco products consumed in
India- 48% of the market. Smokeless tobacco makes up 38% and cigarettes only
14% of the market. Some aspect of the tobacco industry, whether it is tobacco
farming, manufacturing, or distribution, is present in every Indian state, making
tobacco control a truly national effort. This report, like the tobacco industry in India,
has sections on each of the tobacco sectors as well as examples of tobacco
promotion, sponsorship and corporate social responsibility efforts designed to
increase consumption and industry profits.
There is a widely held perception that globally tobacco is a declining industry. This is
not so. There has been a steady increase in production and consumption over the
last decade and this trend is expected to continue. The Food and Agricultural
Organization has forecast an annual growth rate in global tobacco production and
consumption at around 1.9%. The world market for tobacco products grew by 32%
over the last five years - the latest period for which authentic data is available - and
was valued at approximately US$ 235 billion in 1994. The developed world
dominates the tobacco market, with North America and Western Europe accounting
for 63% by value of all tobacco products sold globally. Six countries, China, the
United States, Japan, Russia, Germany and Brazil, account for half the world
cigarette market by volume. China is the single largest market, accounting for over
30% of global consumption.
Global cigarette consumption has grown by 22% since 1980 and was estimated at
5,422 billion sticks in 1995. Cigarettes constitute the principal form of tobacco usage
in virtually every market of the world and account for 85% of global tobacco
consumption by volume and 93% by value. Tobacco is a major source of revenue to
Governments in both the developed and emerging markets and cigarettes contribute
the lion's share of such revenues. Tobacco taxes in Japan for instance, exceeded
US$ 19 billion in 1994, accounting for 1.6% of Japanese Government revenue.

8. Consumer spending on tobacco products varies considerably among countries and
regions. Annual per capita spend exceeds US$ 200 in North America and Western
Europe, whereas in the developing South Asia, including India, it is less than US$ 5.
The key trends impacting the tobacco market are a move towards low delivery
products incorporating light tobaccos and a continued shift from traditional forms of
consumption to cigarettes.
Annual world tobacco production in 1994 was estimated at 7 billion Kgs, of which 1.7
billion Kgs valued at approximately US$ 5 billion were traded internationally.
International trade in tobacco products is growing rapidly. Over 900 billion cigarettes
(16.5% of global production), valued at US$ 25 billion were traded internationally in
1994. The USA accounted for almost 22% of global cigarette exports that contributed
in excess of $ 5 billion to the country's balance of payments.
THE INDIAN TOBACCO MARKET
India is the third largest producer of tobacco in the world. A total of 450 million Kgs of
tobacco was produced in 1995. Only 80 million Kgs were used for domestic cigarette
production and 55 million Kgs exported as cigarette tobaccos.
Developments in the Indian tobacco industry have not been in line with international
trends. The share of cigarettes in the total tobacco consumption in India is about
20%, compared with 85% globally. Internationally, there has been a shift from
traditional forms of tobacco - chewing tobacco, snuff, pipe, cigar/cheroot - to
cigarettes, which is recognized to be the modern and more acceptable form of
tobacco usage. For example, the share of cigarettes in the US increased from 2% in
1880 to 84% currently. In the UK, cigarette share went up from 12% in 1890 to 79%
in 1995. In Italy, cigarettes constitute 98% of consumption today compared to 5% in
1900. Even in neighboring Pakistan, the share of cigarettes has increased
significantly - from 40% in 1971 to 58% today. Quite the opposite, however, has
happened in India. The share of cigarettes has declined to 20% from 23% in 1971,
while overall tobacco consumption has grown. In fact, industry volumes of cigarettes
declined by 12.5% between 1984/85 and 1994/95 before staging a recovery in

9. 1995/96.
Whilst the annual per capita consumption of all tobacco products in India stands at
0.83 kg, about 45% of the world average of 1.85 kg, the per capita consumption in
cigarette form is barely one-tenth of world levels i.e. 101 cigarettes per annum
compared to a global average of 1,030. Per capita consumption in Japan is 26 times
higher, over 18 times higher in the United States, and in China almost 15 times
higher.
There are approximately 200 million tobacco consumers in India, of which only 25
million smoke cigarettes, whereas 275 million in China smoke cigarettes out of 330
million tobacco consumers. Therefore, the Chinese tobacco industry contributes 7
times more revenue at US$ 7 billion, even though tax rates per 1,000 cigarettes in
China are half those in India.
The United States tobacco industry is perhaps the best example of how this industry
should be structured to contribute significantly to the economy. The United States is
the second largest producer and consumer of tobacco products in the world. The
country has one of the lowest rates of excise duty and still collects over $ 10 billion in
revenue. It is estimated that on a purchasing power parity basis, cigarette excise
intensity per capita in the US is less than 5% that of India. The relatively lower rates
of tax have helped the industry invest in brands and quality up gradation, enabling
the United States to be the largest exporter of cigarettes in the world with a growing
share. The quality of tobacco grown there is the best in the world and even though
the price of American tobacco is high, experts constitute over 30% of production.
Exports of tobacco and cigarettes are reported to be the sixth largest contributor to
the US balance of payments and rank second in the country's exports to Japan. In
comparison, even though India is the third largest producer of tobacco in the world,
its economic potential is largely untapped.
a) Adding Value to the Rural Economy
Tobacco is grown in India by small and marginal farmers, mainly in non-irrigated
soils, on land holdings of less than 2.5 hectares. About 400,000 small and marginal

10. farmers grow cigarette tobaccos and over 600, 000 grow non-cigarette tobaccos. No
crop other than cigarette tobacco gives the farmer as attractive a return consistently
in similar agro-climatic conditions. Cigarette tobaccos offer returns more than two
times those of non-cigarette tobaccos and comprise mostly the flue cured variety,
which are sold through government-conducted auction platforms with a minimum
guaranteed price (MGP) to the farmers. As a result, the better the quality of tobacco
the farmer produces, the higher his return, with a minimum return guaranteed by the
MGP system.
Farmers aim to produce tobaccos of such quality and in such quantities so as to
ensure timely sale of the entire production at the highest possible margin.
Fluctuations in supply due to unforeseeable factors can cause intense volatility in
international tobacco prices.
Tobacco farmers in India therefore tend to use the more stable domestic market as
the base and target commensurate production for exports. Even globally, exports
average only 25% of the tobacco produced.
The Indian tobacco market is oriented heavily towards traditional forms of
consumption. Our tobacco farmers produce larger quantities of non-cigarette
tobaccos (which are not exportable), and cigarette tobaccos of low grades, since the
bulk of Indian cigarette consumption is not in the upper and premium segments.
Measures therefore need to be adapted to:
1) facilitate transition from non-cigarette forms of consumption to cigarettes in line
with consumer aspirations and international trends, so that farmers increase their
incomes by producing more cigarette tobaccos.
2) Upgrade consumption to the higher end, to enable farmers to produce premium
quality tobaccos, which can also be exported.
Severe taxation of cigarettes is an indirect tax on tobacco farmers. In 1951/52
farmers growing cigarette tobaccos contributed Rs. 4.03 per kg towards excise duty
and farmer growing other tobaccos Rs. 1.42 per kg, while the burden on other
tobacco farmers increased marginally to approximately Rs. 385 per kg During the

11. same period the huge tax increase on cigarettes has inhibited cigarettes form of
consumption, thereby artificially restricting potential earnings of tobacco farmers and
thus sub-optimizing tobacco's contribution to the rural economy.
b) Enhancing Foreign Exchange Earnings
Global demand is restricted to cigarette type tobaccos of specified quality. India's
tobacco exports at Rs. 421 Crores are miniscule, given the size of our tobacco
market. Less than 20% of India's entire tobacco production is exported. In
comparison, Brazil, with a tobacco market smaller than ours, exports 60% of its
production, and is the world's No.1 tobacco exporter with annual exports averaging
more than 3 times that of India's.
As stated earlier, the principal reason for our export potential remaining largely
untapped is the low quality of tobacco produced. Firstly, cigarettes constitute about
20% of tobacco consumption, as a result of which the majority of leaf tobacco
produced is unsuitable for cigarette production and hence not exportable. Secondly,
cigarette tobaccos grown in line with domestic market requirements are of the "filler"
type, which are exportable but not of premium quality. Price is thus a major factor
influencing their export, impacting farm sand rural income.
India is capable of producing the premium grades of Burley, semi-flavorful and
flavorful tobaccos. While current annual production of Burley, for instance, is in the
region of 8 million Kgs, a production level of 50 million Kgs is achievable by the turn
of the century, with the right inputs.
The huge potential for India's tobacco exports can be fully realized by upgrading
tobacco consumption in line with consumer aspirations and by adopting measures to
increase cigarette consumption at the premium end.
c) Enhancing Government Revenue

12. i) Excise:
Revenue collection from the tobacco industry, by global standards, is modest. The
reason lies in the small taxable base of cigarettes. Almost 90% of Government
revenues accrue from cigarettes, leaving 88% of tobacco consumers effectively
outside the tax net. Any proposal to increase revenues from the tobacco industry
must facilitate growth of the revenue-contributing sector. The non-cigarette segment
of the tobacco industry, which accounts for over 80% of consumption, is unorganized
and fragmented, thereby is making revenue collection from this segment impractical
to administer. An increase in the share of cigarettes within the tobacco basket must,
therefore, be the key objective of any effort to raise revenue.
India's population has a very wide band of income distribution. High rates of taxation
on cigarettes have artificially kept cigarettes beyond the reach of a large number of
tobacco consumers aspiring for cigarette form of tobacco consumption. The route to
optimizing excise revenue collection is an excise duty structure that enables
marketing of cigarettes for each income segment of tobacco consumers.
In 1987, the Government of India rationalized and modified the excise duty structure
for cigarettes. Ad valorem duties were replaced by specific duties based on cigarette
length; the objective was to introduce a more rational system of excise levy and to
reduce litigation associated with ad valorem duties. The Government created five
excise slabs based on length and type of cigarettes, with rates increasing from plain
cigarettes at the low end, to international size filter cigarettes at the top end. The
change has been highly successful on all counts and the Government must be
congratulated on this innovative step of aggregating the advantages associated with
both ad valorem and specific duties.
This structure still, however, left cigarettes beyond the reach of a large number of
aspiring tobacco consumers. Recognizing this, in 1989 the Government introduced a
new excise slab for micros at the low end. The Government in 1994, therefore, boldly
experimented with a sharp reduction in the excise duty on micro cigarettes reducing
it from Rs. 120 per 1,000 to Rs. 60 per 1,000. The industry responded by passing on
the entire reduction to consumers. As a result, a dormant segment of the cigarette

13. industry was infused with growth. In 1995/96, this segment contributed Rs. 90 Crores
to the National Exchequer, up from just Rs. 7.4 Crores in 1993/94.
The excise structure needs to be reviewed periodically to ensure that the excise
slabs correspond to income distribution patterns of tobacco consumers. The
structure should provide easy steps for up gradation of consumption to ensure built-
in buoyancy as per capita incomes increase. Such a structure would eliminate the
need to review excise rates frequently. The rates at the upper end need to be
lowered to favor production of cigarettes within the shores of India and render
uncompetitive the smuggling of cigarettes, which denies the National Exchequer an
estimated Rs 200 Crores in revenue annually.
In my view, the structure is largely in place. The general table of excise duty rates,
however, is too high and should ideally be brought down in a phased manner. If
imperatives in the short run do not permit this, they should at least be moderated and
kept stable. Moreover, the introduction of one or two more slabs would facilitate up
gradation of consumption in an orderly manner.
A less punitive and rational excise duty structure would enlarge the tax base and
increase revenue manifold over the next 5 to 10 years.
ii) Local Taxes:
Excise revenue collected from cigarettes is divided between the Centre and the
States in a ratio determined by the Central Government. This is in accordance with
an agreement reached between the Centre and the States in 1956; whereby excise
duty on cigarettes replaced local taxes. Over the years, this ratio has progressively
increased in favor of the States. As a result, the States' share has grown
considerably faster than overall excise collections.
State Government have for many years levied local taxes on cigarettes in spite of the
1956 agreement. The States argue that they are only restricted from levying Sales
Tax on cigarettes by the agreement and are free to impose other state and local
taxes. Such a stand defeats the entire purpose of the excise sharing system, which

14. was created to ensure free flow of cigarettes throughout the country.
In other parts of the world, tax harmonization is being actively pursued. As
economies globalize, tax equalization is necessary to prevent tax migration.
Countries within the European Unions are continuously rationalizing structures and
reducing variations in rates to make cross border movement less attractive. Canada
recently had to reduce cigarette taxes when a significant increase in rates resulted in
large-scale smuggling from the United States because of the large difference in
excise duty rates between the two countries.
As our economy globalizes, manufacturers in India should be able to leverage the
synergistic benefits of our large common market. The proliferation of varying taxes at
the local level would negate this. The issue is vital for the tobacco industry and
suitable legislation needs to be enacted to make single point taxation fully effective.
d) Government Regulation
In the West, tobacco and cigarettes have become synonymous, unlike in India,
where nearly 88% of consumers do no smoke cigarettes. Any effort to regulate the
tobacco industry therefore must take into account the industry's ability to comply. To
regulate just the 12% cigarette segment would defeat the very purpose of such
regulation.
Statutory health warnings have been mandated by law on cigarette packets and all
cigarettes advertising material since 1975. The law was extended to chewing
tobacco in 1986 and gutka in 1990. Other tobacco products are still not required to
carry any statutory warning. Obviously, the statutory health warning requirements on
tobacco consumption need to be uniformly applicable to all tobacco products.
Regulation of cigarette advertising is a hotly debated subject the world over. Contrary
to general impression, advertising does not necessarily help to expand consumer
demand for a product group, especially for mature product categories like cigarettes.
Nor does a ban on advertising necessarily reduce consumption. The role of
advertising is to inform consumers of product differentiation in features and value,

15. intensify competition, thereby encouraging quality up gradation, thus providing better
value to the consumer. Advertising is a legitimate commercial activity employed for
products that are legally grown, processed and marketed. The absence of
advertising for tobacco would be a form of unintended social engineering, almost
implying that 200 million adults are unable to take decisions related to personal
choice.
The US, Japan, Germany and the UK together contribute the bulk of the budget of
the World Health Organization, but do not ban tobacco advertising. A proposal to ban
advertising of tobacco products in the European Union was vetoed by the
Governments of UK, Germany, Netherlands, Denmark and Greece. In as many as
twenty-nine countries, Governments permit tobacco companies to advertise their
products on the basis of a voluntary code.
Cigarette manufacturers in India have already agreed to evolve and adopt a
voluntary code. In the interests of consumers, given the fact that many adults do
make personal choices, in favor or otherwise of tobacco use and only about 12% of
tobacco users smoke cigarettes, there is a strong case to adopt a voluntary industry
code towards advertising rather than resort to legislation.
India is a large market. Continued reform of the tax structure and moderation of
excise rates for cigarettes would:
1) Provide the basis for up gradation of consumption.
2) Meet consumer aspirations in line with international trends.
3) Enlarge foreign exchange earnings.
4) Increase Government revenues.
5) Bring the multiplier impact of increased farmer incomes to the rural economy.
6) Provide Indian manufacturers a growing base to invest in brands and technology
to compete effectively.
7) Your Company is well positioned to take the leadership role in the process of
realizing this potential and thereby contributing to the well being of all stakeholders. I
look to your continued support in our endeavors.
Cigarette Industry in India

16.  Legal cigarettes account for only ~11% of tobacco consumed in India due to a
punitive taxation and discriminating regulatory regime
 India is the 4th Largest Illegal cigarette Market in the World; resulting in Revenue
loss of over 9000 cr. p.a. to the National Exchequer
 48% of adult Indian males consume tobacco. Only 10% of adult Indian males
smoke cigarettes as compared to 16% who smoke bidis and 33% who use
smokeless tobacco (Source: Global Adult Tobacco Survey India 2010)
 Annual per capita adult cigarette consumption in India is approx. one-ninth
of world average
Legal Cigarettes contribute 87% of Tax Revenue, despite constituting only 11% of
Tobacco consumption
 Over the last 4 years, Excise Duty has increased by 118% and VAT by
142% on as per unit level cumulatively.

17.  Widening differential in Excise Duty rates between Cigarettes and Other
Tobacco Products
 On a per kg basis, the differential in Excise Duty rates between cigarettes
and other tobacco products has widened from 29 times in 2005/06 to over
53 times currently
Cigarettes are least affordable in India

18.  Cigarette taxes in India are 14 times higher than USA, 9 times higher than
Japan, 7 times higher than China, 5 times higher than Australia and 3
times higher than Malaysia and Pakistan.
Per Capita Consumption of Tobacco in India (Gms per year)

19. Per Capita consumption is ~60% of World Average
Per Capita Cigarette Consumption – per annum
 Although India accounts for 17% of world population, its share of world cigarette
consumption is just 1.8%.
 Per Capita consumption in India ~11% of World average.
FMCG Cigarettes – Recent Trends

20.  Legal cigarette industry volumes remain under pressure
o Continued growth in Illegal industry
 Indirect tax incidence up ~125% over the last 5 years
o Steep increase in Excise Duty for the 5th successive year
 85% Graphic Health Warning
o Current manufacture & sale based on 85% GHW in compliance with interim
requirements pending completion of hearing at the Karnataka High Court
 Hearings expected to re-commence in December 2016
o All stocks seized (in Maharashtra, Goa, Rajasthan) have been released
Rapid scale up of FMCG businesses
Indian Leaf Tobacco industry

21.  India – the second largest producer of tobacco (World excl. China)
 However, India’s share is only at 9% of world tobacco trade
o Leaf exports dropped to a four-year low of ~210 million Kgs.
 ITC – India’s largest buyer, processor, consumer & exporter of cigarette
tobaccos.
o 5th largest leaf tobacco exporter in the world
 Pioneering cultivation of flavorful Flue-cured and superior Burley tobaccos in India
 Growth in exports in recent years driven by improvement in farm realizations
Evolution of Tobacco Industry
The Indian government implemented the Cigarettes and Other Tobacco Products Act
(COTPA) in 2003 and rati- fied the WHO’s Framework Convention on Tobacco
Control in 2004, as well as the Cable Television Networks (Amendment) Act 2000
prohibiting tobacco advertising in all state-controlled electronic media and
publications, including cable television.
Further, the Government has also included tobacco control in the priorities of the
ongoing National Rural Health Mission.
Despite these programs, the major challenge to success is effective implementation
of the provisions of COTPA, especially in enforcement of bans on smoking in public
places (which are known to raise cessation rates).
Most importantly, these trends in smoking reflect the lack of substantial increases in
tobacco excise taxes, which have not kept up with the increased affordability of
cigarettes and bidis.

22.  Hence, tobacco control in India urgently requires effective implementation of
national policies. This study of nationally representative Indian surveys over more
than a decade finds substantial increases in the number of male smokers aged
15–69 years, rising over one-third since 1998 to nearly 108 million in 2015.
 The increase is mostly due to population growth offsetting the modest declines in
prevalence over this time period, similar to the pattern observed in other
countries.
 There is a clear shift in consumption away from bidis towards manufactured
cigarettes. The sharpest relative and absolute increase was for cigarette smoking,
particularly in young adult men aged 15–29 years.
 The increases in cigarette use among younger adult men were seen in rural
areas and were greatest among illiterate men. Rapid income growth over the last
decade has most likely contributed to the shift in smoking—from the less-
expensive bidis to cigarettes. Price is the most important determinant of
consumption.

23.  Relative to income, cigarettes and bidis have become less costly in the last
decade. Moreover, and most relevant for policy, India’s complicated tax structure
has kept overall taxes on cigarettes low relative to other countries, with
particularly low taxes on the inexpensive, short cigarettes that compete with the
bidi market.
 The increase in cigarette smoking is consistent also with market reports showing
that the absolute volume of cigarettes sold in India has risen from about 98 billion
sticks in 2000 to 114 billion in 2012. Unfortunately, bidi sales data are
unavailable, as most bidis are sold by small cottage industries with little
monitoring or regulation and attract low or no taxes.
 The observed increase in female smoking is likely to be an artifact of reporting. A
true increase in smoking would be expected among younger women, who have
seen more rapid income growth, and are the subject of tobacco industry
promotion.
 However, among younger adult women, there was little increase in smoking and
indeed smoking prevalence was less than half of that seen in older generations.
Among female respondents in the ongoing Million Death Study (conducted in the
same areas as the SRSBS), there has been no major shift in smoking patterns
among younger women from 2004 to 2013.

24. Characteristics of Tobacco industry:
The tobacco industry comprises those persons and companies engaged in the
growth, preparation for sale, shipment, advertisement, and distribution
of tobacco and tobacco-related products. It is a global industry; tobacco can grow in
any warm, moist environment, which means it can be farmed on all continents
except Antarctica.
The Business Model
The cigarettes-to-hotels-to-paper-to-FMCG major is also present in this segment,
through its Choupal Fresh initiative, and, unlike Reliance and Bharti-Wal-Mart, is on
the side of the angels. The company, which has a long history of sourcing agri-
products (its tobacco, paper, and even the new FMCG businesses source primary
farm produce directly from farmers), has not faced any protests. Reason: it has
created a large rural constituency by working with small and marginal farmers and
tribals by investing in afforestation, watershed management, livestock development
and rural health and education programmes.
And it has done all this not as part of a corporate social responsibility programmed,
but as an integral part of its business plan. Then, its echoupal initiative, instead of
cutting the middlemen out, has integrated them into the system. Yes, they do get a
lower commission on ITC’s purchase of farm produce, but the business model
ensures that they continue to earn money round the year—as opposed to the earlier
model where they did so only during the harvesting season—from other goods and
services that ITC and its partners sell through this channel.
By co-opting at least some of the powerful elements of the rural value chain in its
business model, ITC has ensured that it faces little opposition to its business, even
while others flounder. India Inc. will do well to emulate the ITC model.

25. Tobacco Industry in India:
Smoking kills more than 1 million people a year in India, BMJ Global Health
estimates. The WHO says tobacco-related diseases cost the country $16 billion
annually.
The industry in India, the world's third-biggest tobacco producer, wants Prime
Minister Narendra Modi's government to soften its stance on what it says are tough
FCTC measures that threaten livelihoods among the estimated 46 million people
linked to the sector.
Introduction: Indian tobacco, introduced by the Portuguese in the 17th century, is
appreciated worldwide for its rich, full-bodied flavor and smoothness. It is now an
increasingly well-known as well as respected commodity in global tobacco markets
and has found its way into cigarettes manufactured in several countries. India has an

26. impressive and progressive profile in the global tobacco industry. India is the third-
largest tobacco producer in the world, with annual production of about 800 million
kgs.
Tobacco and tobacco products generate around US$ 2.9 billion in revenues to the
national exchequer by way of excise duty, and around US$ 728.9 million by way of
foreign exchange every year.
Export and key market:
Export of tobacco products from India stood at 20,280 tons, valued at US$ 15.6
million, in July 2016. During the period, export of Flue Cured Virginia (FCV) tobacco
stood at 7,997 tons valued at US$ 26.4 million, while unmanufactured tobacco
exports stood at 12,541 tons valued at US$ 36.8 million.
Indian tobacco is exported to about 100 countries.
India exports unmanufactured tobacco primarily to Western Europe, South and
Southeast Asia, East Europe and Africa. Western Europe is the key market for Indian
tobacco exports.

27. Tobacco Board: The Tobacco Board of India is a facilitator for tobacco growers,
traders and exporters. By creating synergies between these stakeholders, the Board
fosters a vibrant enterprise, with a deep social conscience and strong national
commitment. The Board estimates demand and regulates the production of FCV
tobacco to match demand to ensure a fair price for the produce. The Tobacco Board
assists tobacco farmers in securing crop loans, quality seeds, fertilizers and other
critical inputs; it also counsels farmers on GAP to produce quality tobaccos to meet
the evolving international demand. In addition, the Board conducts auctions for the
sale of tobacco in a competitive and transparent environment. On the export front,
the Board strives to improve the existing markets and develop new markets for
Indian tobacco and tobacco products by undertaking brand building exercises and
participation in international tobacco exhibitions. The Board sponsors trade
delegations to potential importing countries and also invites delegations from other
countries.
1) Specific issues faced by the industry Government Policies:
Government mulls compulsory licensing for 'other tobacco products’
With a view to address public health issues, government is considering to bring
manufacture of 'other tobacco products' like khaini, tobacco blended pan masala,
hookah or gooduku tobacco, zarda and bidis under the ambit of compulsory
licensing.
Domestic tobacco products makers including ITC (BSE 0.99 %) have been
advocating compulsory licensing of all cigarette-making units irrespective of size, and
rise in customs duty on imported cigarettes to rates fixed by the World Trade
Organization.
In June, ITC said high incidence of taxation and "a discriminatory regulatory regime"
on cigarettes in India have led to a shift in tobacco consumption to lightly taxed or
tax-evaded tobacco products, including bidi, khaini, chewing tobacco, gutkha and
illegal cigarettes, which constitute over 89 per cent of India's tobacco consumption.
2) Tobacco Control Laws:

28. Smoke Free Places: Smoking is completely banned in many public places and
workplaces such as healthcare, educational, and government facilities and on public
transport. The law, however, permits the establishment of smoking areas or spaces
in airports, hotels having 30 or more rooms, and restaurants having seating capacity
for 30 or more. With respect to outdoor places, open auditoriums, stadiums, railway
stations, bus stops/stands are smoke free. Sub-national jurisdictions may enact
smoke free laws that are more stringent than the national law.
Tobacco Advertising, Promotion and Sponsorship: Advertising through many forms
of mass media is prohibited, but tobacco companies still may advertise at the point of
sale, subject to some restrictions. There are some restrictions on tobacco
sponsorship and the publicity of such sponsorship.
Tobacco Packaging and Labeling: Health warning labels are pictorial and text; cover
85 percent of the front and back panels of the tobacco product package parallel to
the top edge; and are rotated every 12 months. Misleading packaging and labeling,
including terms such as “light,” and “low-tar” and other signs, is prohibited.
Specific issues faced due to changes in demographics:
Impact in Livelihoods of Farmers:
The Tobacco industry provides direct and indirect employment to 38 million people in
India, primarily in the agriculture sector.
Tobacco continues to be a viable and remunerative crop for farmers in the regions
where this crop is grown, given the prevailing agro-climatic nature and soil conditions
of these regions. It gives farmers an assured income and good institutional support is
also available for this crop.
The disproportionately high taxation on cigarettes fuels transborder smuggling,
leading to a reduction in domestic demand and impacts the market price for the farm
produce. This adversely impacts the livelihood of farmers in general and the
dependent community in particular. Tobacco farmers are important constituents of
the tobacco industry.
Increasing volumes of smuggled foreign cigarettes also result in the decline in
demand for Indian tobaccos since these cigarettes do not use any Indian tobaccos.

29. On the other hand, illegal cigarettes produced in India use tobaccos of dubious and
inferior quality. Consequently, the proliferation of duty evaded cigarettes not only has
an adverse impact on demand for high-quality Indian tobaccos but also a cascading
impact on incomes of Indian farmers, long term viability of the legal cigarette industry
as well as Government revenues.
Challenges impacting Agriculture and Agri business:
 Agriculture in India engages around 50 per cent of the country's workforce and
supports the livelihoods of 75 per cent of the population living below the poverty
line.
 The sector consumes 80 per cent of the nation's fresh water resources, a quarter
of the total electricity and more than 70 per cent of central government subsidies.
 However, it accounts for just about 14 per cent of GDP. Woefully therefore, the
farmer's per capita income is less than one-fifth of the rest of the country's
average.
 Such low incomes are a result of a deteriorating natural resource base,
disconnected value chains, fragmented landholdings, weak infrastructure,
inadequate knowledge and multiple intermediaries.
 In addition, around 55% of India's total sown area meets its requirements from
rainwater alone. This assumes importance in the face of environmental
challenges of erratic rainfall leading to drought and floods. A majority of the
farmers are hence trapped in a vicious cycle of low productivity and low
investments.
 A long-term view of tackling these issues entails a mosaic of alternative solutions
at the policy level, which address the issue in the short, medium and long terms.
These measures will also ensure larger private participation and investments
leading to a large-scale revival of this sector.
 Constraints like non-implementation of the 'Model APMC' Act recommended by
the Centre leads to multiple levels of transportation, handling expenses, and
commissions of various agents. This essentially adds nearly 20% cost, through
non-value-adding activities. The Model Act facilitates a direct interface between
farmers and Agri businesses and helps in reducing transaction costs by allowing

30. alternative marketing models to co-exist, including providing farmers with the
freedom to sell at the farm gate.
I. Climate change and environment degradation:
 The race for unbridled economic growth has left a planet seriously depleted of
environmental resources.
 The world's ecological footprint suggests that consumption of natural
resources every year will be far more than the earth's capacity to regenerate.
 With increasing population, people will have access to limited resources which
will be far less than what was available in 1950.
 The impact of climate change is manifest in the changed weather patterns and
increasing frequency of extreme weather conditions. This affects agricultural
production and severely impacts the livelihoods of farmers. Given that several
of ITC's businesses are dependent on agricultural inputs, climate change and
global warming have important ramifications for the Company and some of its
major stakeholders – the farmers and communities in rural India.
II. Poverty and Social Inequities:
Nearly 700 million people living in rural India, with low adaptive capacities, have a
direct and symbiotic dependence on climate sensitive sectors (agriculture, forest
and fisheries) and natural resources (water, bio-diversity, mangroves, coastal
zones and grasslands) for their subsistence and livelihood. The limited options of
alternative off-farm employment, combined with endemic poverty, continue to
imperil the livelihood of millions of small and marginal farmers, mainly in the rain-
fed agriculture regions. The production regime in rain-fed agriculture is inherently
fragile and getting more so due to a number of factors:
 An estimated 147 million hectares suffer from various forms of land
degradation due to water and erosion, stemming mainly from unstable use
and inappropriate land management practices. Erosion rates are reported to
be in the range of 5 to 20 tonnes/hectares.
 As many as 99 districts spread over 14 states were identified by the Central
Water Commission as drought prone. Such areas are concentrated in the

31. states of Rajasthan, Karnataka, Andhra Pradesh, Gujarat and Madhya
Pradesh.
 Of the total water available for agriculture, groundwater alone accounts for
39% of the water used in agriculture. Yet the Central Ground Water Board
reported that 1,565 blocks (one-third of the total) ranged from semi-critical to
over-exploited groundwater status.
 Based on the current evidence, there is a compelling case to argue that these
factors are likely to get exacerbated due to threat of climate change, leading to
an increase in the frequency and intensity of droughts and floods. Climate
change over the long-term will thus affect the rural economy in a number of
ways – the majority of which would threaten food security for the most
vulnerable people.
III. Addressing issues related to employee safety:
Given India's favorable demographic dividend, it is evident that a large pool of
India's youth is joining the workforce every year. It is critically important for an
organization to ensure the total safety of this valuable resource. While we are
progressing steadily towards our target of zero accidents within our premises,
we cognize that accidents outside the workplace are on the rise in India, given
issues such as the steady proliferation of 2 wheelers on the roads, which are
rendered unsafe due to poor conditions and inadequate infrastructure.
Specific issues faced due to Globalization:
The globalization of tobacco marketing, trade, research, and industry influence
represents a major threat to public health worldwide. Drawing upon tobacco industry
strategy documents prepared over several decades, this paper will demonstrate how
the tobacco industry operates as a global force, regarding the world as its operating
market by planning, developing, and marketing its products on a global scale. The
industry has used a wide range of methods to buy influence and power, and
penetrate markets across the world. It has an annual turnover of almost US$400
billion. In contrast, until recently tobacco control lacked global leadership and
strategic direction and had been severely underfunded. As part of moving towards a

32. more sustainable form of globalization, a global enabling environment linked to local
actions should focus on the following strategies: global information management;
development of nationally and locally grounded action; global regulation, legal
instruments, and foreign policy; and establishment of strong partnerships with
purpose. As the vector of the tobacco epidemic, the tobacco industry’s actions fall far
outside of the boundaries of global corporate responsibility. Therefore, global and
local actions should not provide the tobacco industry with the two things that it needs
to ensure its long term profitability: respectability and predictability.
Globalization and the tobacco industry as the vector of the tobacco epidemic, an
increasingly globalised tobacco industry is acutely aware of the characteristics of
globalization. The huge tobacco multinationals are attempting to manipulate
globalization trends in their favor. In an increasingly globalised marketplace “mega
mergers and acquisitions have dramatically changed the face of the worldwide
cigarette industry”. Cigarette companies are looking for greater production volumes:
“the more you produce the more profitable you are.” The global shift towards trade
liberalization facilitated by multilateral trade agreements such as the single package
of World Trade Organization (WTO) trade agreements, regional, and bilateral
agreements have encouraged the penetration of new markets by tobacco
multinationals. Market liberalization and penetration has been linked to a greater risk
of increased tobacco consumption, especially in low and middle income countries.
Directly linked to the business opportunities covered by global trade liberalization,
multinationals such as BAT Co are anxiously awaiting further opening of the Chinese
market. Martin Broughton recently stated: “I hope that there will be a successful
negotiation of China’s entry into the World Trade Organization before the
commencement of a new round of multilateral trade talks. We would hope to improve
our market access and secure reductions and I welcome reports that China has
offered far-reaching cuts.” The fact that the opening of markets and the process of
globalization has been linked to increased health risks supports the need for a
stronger national regulatory environment for tobacco control and harmonization of
national policies between countries. This approach is permissible under the 1990
General Agreement on Tariffs and Trade Panel Report, Thailand—restrictions on
importation of and internal taxes on cigarettes, as long as such norms do not
discriminate against foreign commodities in preference for those which are

33. domestically produced. The tobacco industry’s strategies are intimately linked with
the idea of international brands. The industry recognizes that in many areas “from
advertising to quality standards, it is easier to control one brand than many different
ones”. The industry looks towards the creation of new “global brands” and a “global
smoker” as one way of overcoming markets which have resisted the tobacco
industry’s onslaught: “Globalization has its limits. In India, for instance, around 80 per
cent of the population uses traditional tobacco products such as bidis or chewing
tobacco. For how long will these markets resist the attraction of global trends? In one
or two generations, the sons and grandsons of today’s Indians may not want to
smoke bidis or chew pan masala. Global brands are one way to accelerate this
process.” In other words, industry strategists are encouraging the homogenization of
the global tobacco industry and the creation of a new global shared culture enshrined
in the concept of a global smoker. The global consolidation of the tobacco industry, a
downside of the globalization process, is an obvious vehicle for promoting the idea of
global smokers and their global brands.
Towards a sustainable globalization?
Increasingly, national social policies are being affected by transnational forces. With
the advent of global markets “social policy activities traditionally analyzed within and
undertaken within one country now take on a supranational and transnational
character”. Questions of how to create a socially regulated global capitalism, rather
than an anarchic unregulated system, are becoming part of the mainstream global
social policy debate. In this regard, social improvements, for example in public
health, should be seen as a means of forging a sustainable globalization: health
improvements have been increasingly linked to positive economic effects, and the
crucial link between health and human capital formation has become an important
area of recent health policy research. The emergence of transboundary issues such
the tobacco epidemic call for a new consciousness which will focus on a more
sustainable form of globalization. Such a shift of global public opinion is evident in
recent attitude shifts towards the tobacco industry: “Today, however, we are
witnessing the early signs of a shift in public consciousness. Such corporate
excesses as Big Tobacco’s manipulation of nicotine levels to increase addiction have
disturbed a growing segment of the population.” In the evolution of social policies to

34. address the negative externalities of globalization, public health problems need to be
considered as part of widening the globalization paradigm/ debate. An important part
of these evolving global norms needs to include “global social responsibility in the
private sector”. In this regard, the emergence of corporate responsibility should
minimize the negative impacts and maximize the positive opportunities “in core
business activities, via social investment activities and engagement in public policy”.
Clearly the tobacco industry’s strategies/tactics are at odds with the norms of social
and corporate responsibility. The Minnesota industry documents clearly show the
extent of the tobacco industry’s fraudulent activities regarding “what the industry
knew—that smoking causes cancer; when the industry knew it—in the 1950s; and
what the industry did about it—systematic denial and cover up”. Moreover, recent
evidence reported by Ong and Glantz documents how Phillip Morris mounted an
“inter-industry strategy” designed to undermine the International Agency for
Research on Cancer’s (IARC) study on passive smoking, and demonstrates the
extent to which the tobacco industry will go to shape media and public opinion.
Industry Structure

35. ITC is divided into four industries:
 FMCG
 Hospitality
 Paperboard & packaging
 Agribusiness
 IT Solutions
FMCG
FMCG is divided into:
 Cigarette and Cigars
 Foods
 Lifestyle Retailing
 Personal Care
 Education and Stationary
 Safety matches
Hospitality
Hospitality is divided into:
 Hotels
 Restaurants
Paperboard & Packaging
It is divided into:
 Paperboard & Specialty paper
 Packaging
Agribusiness
 Agri commodity & Rural Services
 E- Choupal

36. Specialty of the Industry
Attractiveness
ITC is the market leader in cigarettes in India. With its wide range of invaluable
brands, ITC has a leadership position in every segment of the market. ITC's highly
popular portfolio of brands includes Insignia, India Kings, Lucky Strike, Classic,
Gold Flake, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk
Cut, Duke & Royal.
The Company has been able to consolidate its leadership position with single minded
focus on continuous value creation for consumers through significant investments in
creating & bringing to market innovative product designs, maintaining consistent &
superior quality, state-of-the-art manufacturing technology, & superior marketing and
distribution. With consumers & consumer insights driving strategy, ITC has been able
to fortify market standing in the long-term, by developing & delivering contemporary
offers relevant to the changing attitudes & aspirations of the constantly evolving
consumer.
ITC's pursuit of international competitiveness is reflected in its initiatives in overseas
markets. In the extremely competitive US market, ITC offers high-quality, value-
priced cigarettes and Roll-your-own solutions. In West Asia, ITC has become a key
player in the GCC markets through its export operations.
ITC's cigarettes are manufactured in state-of-the-art factories at Bengaluru, Munger,
Saharanpur, Kolkata and Pune, with cutting-edge technology & excellent work
practices benchmarked to the best globally. An efficient supply-chain & distribution
network reaches India's popular brands across the length & breadth of the country.
3 Reasons Why Tobacco Is the Most ‘Successful’ Industry in
History
1) The tobacco industry is an oligopoly
The tobacco industry has produced handsome dividends because it does not
innovate. The reasoning is simple: Research and development costs can bring down

37. net income without producing tangible results that affect bottom lines. But, that
reasoning does not delve into the factors that have enabled a non-innovative industry
to survive for so long.
The tobacco industry is an oligopoly dominated by a handful of players in the
domestic market and international markets. This is because there are several
barriers to entry in the industry. In addition to the complex supply chain and
distribution required from major retail players, new players in the industry would also
have to deal with a phalanx of regulations and heavy taxation. As a result,
competition within the industry is rare and the incentive to innovate on products and
prices is low.
To add to that cigarettes have an inelastic demand curve. This means that demand
stays constant, even in times of recession. Thus, the tobacco industry manages to
make profits because product margins improve, even if the overall product volume
sold decreases.
2) It passes litigation and tax costs onto customers
It is a fallacy that the tobacco industry has suffered due to the increasing number of
lawsuits against them. The industry simply passes on increased litigation and tax
costs to consumers and channel partners.
In fact, increased taxation has increased profit share for individual tobacco
manufacturers in the tobacco supply chain. Manufacturers also place the onus of
promoting their products on retailers because cigarettes can drive sales for other
products.
3) It looks to international markets for growth
The tobacco industry has looked outward since the early 1990s, when a number of
lawsuits were filed against major players. Since then, Philips Morris International
(PMI) — makers of the iconic Marlboro brand — has become the most valuable
company in the tobacco industry with a market capitalization of more than $100

38. billion. As comedian John Oliver outlined in his viral video recently, the company has
followed a strategy of aggressive litigation against potential competitors and market
restrictive policies.
Driving Forces
The tobacco industry is mature and global cigarette sales volumes are stable.
However, tobacco companies enjoy a unique position among consumer companies
in that they have strong pricing power. The industry’s relationship with the public
sector is of fundamental importance with regard to tax policies, regulations and
efforts to combat cigarette smuggling. The industry is constantly scrutinized by
legislators, the media and NGOs, which requires well-managed companies and
supply chains as well as a high degree of transparency. Following new legislation
regulating smoking, it will also be increasingly important for tobacco companies to
partly move away from traditional tobacco products and explore innovative options in
the area of non-combustible tobacco, and non-tobacco nicotine products, both of
which claim to have a lower health impact.
Key Success Factors

39.  Strategic Market Segmentation
 Understand Competitor’s Strengths and Weaknesses
 Respond to Customer’s Needs and Wants
 Efficiencies Through E-Commerce/Technology
 Reliable Delivery
 Strong Service
 Solid Sales and Support Staff
 Reduces Costs, Operates Lean
 Utilize Employees Strategically
In the process of analysis of Key Success Factors it is important to have a realistic
view of both the drivers of the market and of the customer’s needs. It is also key to
understand and to define the position of the company as compared to competitors for
the Key Success Factors. Key Success Factors can exist in both the functional areas
of the company and in the condition or circumstances of the company. Functional
Key Success Factors might include such things as the following: Manufacturing –
proprietary processes, Marketing – after sale service or highly trained sales force,
Supply Chain – on time, perfect order delivery, Technology – on line, real time
information exchange between the company and the customer. Examples of Key
Success Factors relating to the condition or circumstances would be as follows:

40. favorable market image or reputation, low cost operations (not limited to
manufacturing), location relative to customer, exclusive processes in manufacturing
or supply chain.
Business Risk Assessment
 Market Position
 Raw material procurement
 Diversification
 Marketing and Distribution
 Operating Management
Financial Risk Assessment
 Financial Policy
 Capital Structure
 Cash flow Protection and Liquidity
 Financial Flexibility
The Indian tobacco industry
India is the second largest producer of tobacco in the world after China. It produced
572 m Kgs of tobacco in FY03. However, India holds a meager 0.7% share of the
US$ 30 bn global trade in tobacco, with cigarettes accounting for 85% of the
country's total tobacco exports.
Despite being the second largest producer, India is only the ninth largest exporter of
tobacco and tobacco products in the world. Out of the total tobacco produced in
India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most
of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and
other cheap tobacco products, which have no demand outside the country. In India,
three major cigarette players dominate the market, primarily ITC with 72% market
share, Godfrey Phillips with 12% and VST with 8% share of the market.

41. What to expect?
In our view, going forward, tobacco companies are likely to face tougher times with
the government's intervention on the rise. However, considering that as per capita
income increases and there is a change in the demographic profile of the populace,
there is still some scope for growth for the Indian tobacco industry.
Leading Cigarette Brands Promoted in India Cigarette companies aggressively
advertise their brands in order to attract new smokers and to encourage current
smokers to switch brands.58-60 From March 2009 to March 2010, cigarette leader
ITC spent 5.1 billion Rs ($114.7 million USD) on advertising and promotion.40
According to Euromonitor International, cigarette companies are focusing on
targeting young urban consumers and middle-upper income consumers.61
Companies are also shifting brands away from unfiltered variants to filtered variants.
61 In 2009, local brand Gold Flake had the largest cigarette market share in India
(31%), followed by Wills (18%) and Scissors (8%) - all of which are owned by ITC
Group.
Slim cigarettes targeting women although the female smoking population is currently
very small (about 3%) cigarette companies in India see the potential for growth by
attracting women. Since 2007, slim cigarette brands have been launched to appeal
to women smokers.32
• The first slim cigarette to hit the Indian market was the Stellar Slims brand by
Godfrey Phillips in 2007. The brand is marketed as having lower levels of nicotine
with the satisfaction of a regular cigarette.
• In 2008, ITC Group launched Wills Classic Verve slim cigarettes targeted at
women and first time smokers. ITC describes the brand packaged in a shiny red as
“India’s trend setting cigarette that] defines ubercool urban style.

42. • Golden Tobacco also has a slim cigarette called June.49
Targeting health conscious consumers with misleading claims As Indian customers
become more aware of the health risks associated with tobacco use, cigarette
companies have created new products and tactics to counteract consumer
knowledge. One such tactic is to use misleading terms (ex “low-tar”) on cigarette
packaging or in advertisements that encourage health concerned smokers to switch
to cigarettes brands that they perceive as safer. This also offers consumers that are
concerned about health risks from tobacco an alternative to quitting. As of 2006,
India prohibits tobacco product packaging and labeling from containing information
that is “false, misleading or deceptive,” or that is likely to create misperceptions about
the characteristics or health effects of tobacco products. This includes prohibiting the
use of terms such as “light”, “mild” and “low-tar”. Despite these restrictions, cigarette
brands are still misleadingly marketed as being healthier.
• LoeTobac cigarettes launched by Golden Tobacco in 2006 claim to contain 50%
less tobacco than regular cigarettes.66-67 Golden Tobacco also claimed that
‘LoeTobac has been found to have “safer delivery levels” of tar, carbon monoxide
and tobacco-specific nitrosamines than other brands
• Golden Tobacco markets Diet Blue cigarettes which use “ECOTINE technology and
is low in TSNA [so that it] does less damage to smokers.” On the company website,
Diet Blues are also described as having almost zero carcinogens making them “the
safer option for existing habitual smokers.”69
• According to Euromonitor International, ITC plans to peruse creating “less harmful
cigarettes” and is expected to promote mid and low tar cigarettes towards consumers
in the future.
Brands that appeal to young tech-savvy smokers. India has a very large technology
industry and a growing information technology culture. Cigarette companies are
capitalizing on the technology trend by introducing premium brands that appeal to
younger consumers.
• Godfrey Phillips launched I-gen in 2006. I-gen cigarettes have a black filter and the
black, red and silver packaging is “aimed at making the product look trendy and

43. contemporary.”70 The brand is descried on the company’s website as a cigarette
that “holds the promise cigarette quality and immense style.”
• In 2005, Golden Tobacco launched Chancellor XP. XP refers to the Windows
operating system and the brand is designed to appeal to India’s information
technology workers.
Tobacco Industry Promotion and Sponsorship
The tobacco industry engages in a comprehensive marketing strategy to create the
impression that tobacco use is widespread and acceptable. These strategies include
direct advertising (ads on TV or in magazines and at point of sale) and indirect
advertising such as sponsorship of sports and concerts, product placement, and
brand stretching. In India, despite an advertising ban having passed in 2003,
cigarette companies in particular consistently exploited loopholes in the law and
relaxed enforcement to market their products and attract new users. Examples
include:
• In 2010, Godfrey Phillips India broke into the Indian chewing industry with the
launch of Pan Vilas, a premium pan masala brand, and planned to invest Rs 1 billion
($US 22 million) over three years on marketing the product. Nita Kapoor, vice
president of marketing and corporate affairs said in reference to promoting Pan Vilas
that the company would “push this product aggressively to penetrate deeper in the
market. Considering recent declines in cigarettes sales, the successful marketing of
a pan masala brand will allow Godfrey Phillips easier access to the smokeless
tobacco market. The company plans to launch a zarda product by the end of 2011.71
• The ITC group uses two of its popular cigarette brands, Wills and John Player, as
the brand name of lifestyle retailing stores that sell clothing.72 The Wills Lifestyle
brand is a well-established brand and also sponsors India’s annual Fashion Week73,
stretching the cigarette brand name so that it is associated with the glamour of
fashion and not just the deadly tobacco product.
• In 2009, 700 buses in Mumbai carried pan masala advertisements. While
advertising non-tobacco pan masala products is not illegal in India, their presence on
buses is considered surrogate advertisement for tobacco products because the same

44. brand name and packaging exists for both pan masala and chewing tobacco
products.
The advertising ban in India is not strictly enforced and tobacco companies take
advantage by promoting their products in ways that are illegal. In 2009, Four Square,
a popular Godfrey Phillips India brand, sponsored a concert series and talent contest
in the city of Chennai. The event titled “Four Square- GET FAMOUS- be Tamil
Nadu’s Next Singing Sensation” was heavily promoted through limited edition
cigarette packs, large billboards, point of sales displays and contest entry locations
across the city.
ITC
Legal cigarettes account for only ~11% of tobacco consumed in India due to a
punitive taxation and discriminating regulatory regime
 India is the 4th Largest Illegal cigarette Market in the World; resulting in
Revenue loss of over 9000 cr. p.a. to the National Exchequer
 48% of adult Indian males consume tobacco. Only 10% of adult Indian males
smoke cigarettes as compared to 16% who smoke bidis and 33% who use
smokeless tobacco (Source: Global Adult Tobacco Survey India 2010)
 Annual per capita adult cigarette consumption in India is approx. one-ninth of
world average
 Legal Cigarettes contribute 87% of Tax Revenue, despite constituting only
11% of Tobacco consumption.
• Over the last 4 years, Excise Duty has increased by 118% and VAT by 142% on
per unit level cumulatively.

45. Industry Players
ITC is the market leader in cigarettes in India. With its wide range of invaluable
brands, ITC has a leadership position in every segment of the market. ITC's highly
popular portfolio of brands includes Insignia, India Kings, Lucky Strike, Classic,
Gold Flake, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk
Cut, Duke & Royal.
The Company has been able to consolidate its leadership position with single minded
focus on continuous value creation for consumers through significant investments in
creating & bringing to market innovative product designs, maintaining consistent &
superior quality, state-of-the-art manufacturing technology, & superior marketing and
distribution. With consumers & consumer insights driving strategy, ITC has been able
to fortify market standing in the long-term, by developing &delivering contemporary
offers relevant to the changing attitudes & aspirations of the constantly evolving
consumer.
ITC's pursuit of international competitiveness is reflected in its initiatives in overseas
markets. In the extremely competitive US market, ITC offers high-quality, value-
priced cigarettes and Roll-your-own solutions. In West Asia, ITC has become a key
player in the GCC markets through its export operations.

46. ITC's cigarettes are manufactured in state-of-the-art factories at Bengaluru, Munger,
Saharanpur, Kolkata and Pune, with cutting-edge technology & excellent work
practices benchmarked to the best globally. An efficient supply-chain & distribution
network reaches India's popular brands across the length & breadth of the country.
Awards
ITC's Cigarettes business has been winning numerous awards for its quality,
environmental management systems and product excellence:
 'Best Manufacturer of Cigarettes' for the year 2008 & 2007 and Best
Exporter of Cigarettes for 2008 by the Tobacco Board based on previous
three years' performance.
 Occupational Health and Safety Award 2007 for Excellence in Safety
Management to the Bengaluru, Saharanpur and Kolkata factories from the
Royal Society for Prevention of Accidents (ROSPA), U.K.
 5 Star Health and Safety Rating in 2007 from the British Safety Council to
the Bengaluru, Munger, Kolkata and Saharanpur factories and the "Sword of
Honor" for Bengaluru & Saharanpur factories in 2006.

47. Other competitors
Godrey Phillip
Godfrey Phillips India Limited, the flagship company of K.K. Modi Group, is one of
the largest players in the Indian cigarette industry an annual turnover of
approximately Rs. 4,348 crores (2015-16). The company has expanded its business
interests to tea, pan masala, chewing and confectionery products. Godfrey Phillips
India has operations across the country with the northern and western parts being
the areas of strength. Our extensive distribution infrastructure allows us to reach
consumers across India.
Along with some of the most popular cigarette brands in the country, like Four
Square, Red and White, Cavanders, Tipper and North Pole, Godfrey Phillips India
also manufactures and distributes the iconic Marlboro brand under a licensing
agreement with Philip Morris. We also recently launched Hawk Eye brand of super-
premium cigarettes that is making its mark within a short time.
Our concerted efforts with the Tea City brand, led by the success of Symphony and
Super Cup tea, has made us India's 8th largest packaged tea manufacturer. Godfrey
Phillips India has also forayed into the highly competitive confectionery segment with
FundaGoli, in a range of flavors.

48. A few years ago, the company launched Pan Vilas pan masala, which has already
shown great potential. Our recent product launches include Raag, a pan masala in
the popular price segment, and Silver Dewz – a silver-coated Elaichi (cardamom
seed) mouth freshener. Together, the two brands are poised to significantly grow our
presence in the pan masala category.
In cigar distribution Godfrey Phillips India is a pioneer and the market leader. We
were the ones who organized the fragmented cigar market in India. Today, we are
the largest importers of cigars in India, and the appointed distributor of world famous
companies like Habanos SA (Cuba), Altadis (SA), Oettinger Davidoff (Switzerland),
Altadis (USA), Scandinavian Tobacco Group, and Villiger Sons (Switzerland).
Apart from the success in India, Godfrey Phillips India has also made inroads in
international markets. Our International Business Division has developed rewarding
associations with various players in the international tobacco industry.
We export its own cigarette brands, cut and blended tobacco, tobacco leaf and offer
technical services and contract manufacturing for companies from the Middle East,
Africa, Asia, Europe, Australia and Latin America.
Godfrey Phillips India- Established in India in 1936 as an import company for Godfrey
Phillips, UK. The company has since established itself as a major local manufacture
of cigarettes in India.43
• Godfrey Phillips is the second largest cigarette company in India with 14% of the
market. Since 2001, the company has seen continuous growth in market share and
has increased its cigarette production by 43% from 8.7 billion sticks in 2001 to 12.5
billion sticks in 2009.
• Godfrey Phillips India has two major stake holders - the KK Modi Group, an
industrial conglomerate based in Mumbai, and the international tobacco company
Philip Morris International (PMI) which together hold a total of 71% of the
company.43 In May 2009, KK Modi acquired an additional 10.8% stake in Godfrey
Phillips from PMI, bringing its total share to 47% and PMI’s to 25%.
• Godfrey Phillips India has a leaf division that provided tobacco leaf for production
in- country and for export. The company also sells tea. The cigarette segment

49. accounted for 92% of Godfrey Phillips India revenue for the financial year ending
March 2010.
VST Industries-
Established in 1930, before the company changed its name to VST Industries in
1984, it was known as the Vazir Sultan Tobacco Co.
• VST Industries is the third largest cigarette company in India with 9% of the
market. Between 2001 and 2009 the company lost market positioning and saw
a 28% decrease in volume sales.
• Since 2008, declines in growth have reversed. VST Industries reported a 4.5%
increase in volume production for the fiscal year ending in March 2010, as well
as record profits.
• • VST Industries is an affiliate of BAT, which holds a 32% stake in the
company.
• • The company sells economy priced cigarettes, and has a strong presence in
South India.48 o besides cigarettes; VST Industries also sells unmanufactured
and cut tobacco leaf.
• • VST Industries has a manufacturing facility located in Andhra Pradesh.

50. Golden Tobacco
Established in India in 1930 as the first wholly-owned Indian tobacco Company in the
country. Formally known as GTC Industries, renamed Golden Tobacco after
emerging from its retail business in 2008.
• Golden Tobacco is the fourth largest cigarette company in India with 1% of the
market. In 2001, the company controlled 10% of the cigarette market but saw a
dramatic decline in market share and production in 2008 after the tax increase on
unfiltered cigarettes.
• In 1979, the company was acquired by Dalmia Group which also has interests in
telecommunications, chemicals, and textiles. The Dalmia group holds a 36% share of
the company.
• The company has two major production facilities in Mumbai and Baroda.
Transnational Tobacco Companies (TTC) Presence in India
The expansion of TTC in India has been limited by restrictions on FDI by cigarette
companies in the country. However, as described previously, three of the top
international tobacco companies currently have stakes in local manufactures.
Despite restrictions, TTC’s continue to focus on India because of the potential growth
of the cigarette market.
British American Tobacco (BAT) - BAT is a British company headquartered in
London, England. BAT is ranked third in the global tobacco market.
• BAT is a stakeholder in ITC and VST Industries and owns approximately 32% of
each tobacco company.
• BAT attempted to increase its stake in ITC from 32% to 51% but the company
has been prevented from doing so by the Indian government and restrictions on
FDI.
• Philip Morris International (PMI) - PMI is a U.S. company with headquarters in
Lausanne, Switzerland. PMI is ranked second in the global tobacco market
behind China National Tobacco Company. 52 • PMI currently owns a 25% stake
in Godfrey Phillips India after selling part of its shares to KK Modi in 2009.44 • In
2009, after years of trying to get approval to independently manufacture Marlboro

51. cigarettes in India, PMI allowed production of its most popular brand to start
under the supervision of Godfrey Phillips.53
• Japan Tobacco International (JTI) - The country of Japan is the majority
shareholder in JTI and the company is headquartered in Geneva, Switzerland.
JTI is ranked fourth in the global tobacco market.
• JTI currently holds a 50% stake in JTI India, a joint venture with a Mumbai-based
law firm, the Thakkar family.
• JTI has been working since 2008 to increase its stake in its Indian unit from 50%
to 74% but was prevented from doing so by the Foreign Investment Promotion
board. In early 2010, JTI invested $65 million USD in its India unit just days
before the Indian government decision to ban FDI in cigarette manufacturing.
• JTI is affiliated with ITC through the manufacturing of Berkley cigarettes, which
makes up 1.3% of the Indian cigarette market. Although JTI is the global brand
owner of Berkley, the brand is manufactured in India by ITC.
Name Last Price Market Cap.
(Rs. cr.)
Sales
Turnover
Net Profit Total
Assets
ITC 229.95 278,685.25 36,582.67 9,311.26 32,958.43
Godfrey Phillip 874.15 4,545.05 2,411.59 164.98 1,486.79
VST 2,250.05 3,474.51 883.15 153.11 370.44
Kothari Product 169.15 504.81 4,641.59 51.45 831.71