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By
Kaushik Majumdar
Abhishek Khemka
Sudip Kumar Das
Sudipto Ghosh
DIVERSIFICATION
Diversification is a form of corporate strategy for a
company.
It seeks to increase profitability through greater sales
volume obtained from new products and new markets.
Diversification can occur either at the business unit level or
at the corporate level.
At the business unit level, it is most likely to expand into a
new segment of an industry which the business is already in.
At the corporate level, it is entering a promising business
outside of the scope of the existing business unit.
DIVERSIFICATION
Diversification is part of the
four main marketing
strategies defined by the Product/Market Ansoff
matrix:
JSW Energy
We want to enter all fields of energy including wind and
solar.Our aim is to be in all segments such as transmission,
generation and trading in the next five
years. Senior Jindal Executive
DIVERSIFICATION AS A CORPORATE
STRATEGY
Should companies concentrate on one business or
should they be holding a portfolio of businesses?
Almost 40 years back, Peter Drucker argued that
Every business needs a core an area where it leads
and along with it, every business must diversify to
compete in an era of fast changing markets and
technologies.
Today, the business environment has become much
more volatile and dynamic. So, the key issue, is not
whether to diversify, but when and how to diversify.
DIVERSITY IN DIVERSIFICATION
Microsoft Wipro
Operating systems Vegetable oils
Video games Lighting soaps
Web hosting Medical equipment
Enterprise software Computer software
The name of the Company was changed from Imperial Tobacco Company
of India Limited to India Tobacco Company Limited in 1970 and then to
I.T.C. Limited in 1974.
ITC's diversified status originates from its corporate strategy aimed at creating
multiple drivers of growth anchored on its time-tested core competencies:
unmatched distribution reach, superior brand-building capabilities, effective
supply chain management and acknowledged service skills in hotel.
100 Inspiring years.
Established by UK-based tobacco major BAT
1910, full fledged sales organization named Imperial Tobacco Company of
India Limited
July 1912,Indian Leaf Tobacco company(ILTC)
1925 ITCs Packaging & Printing Business Division was set up as a strategic
backward integration for ITCs Cigarettes business.
Late 1960s,GoI pressured MNC to reduce holdings. Though Imperial clearly
dominated cigarette business, decided to reduce its dependence & so diversify.
Though Imperial clearly dominated cigarette business, decided to reduce its
dependence & so diversify.
1971, Marine product export division
1974 The name of the Company was changed to ITC Limited (Indian
Tobacco company).
1975 The Co. launched its HOTEL BUSINESS which was named ITC-
Welcome group Hotel Chola.
Contd..
1977- Textile industry
1979 ITC entered the Paperboards Business by promoting. Bhadrachalam
Paperboards Limited, which today has become the market leader in India.
1981- Cement business
1985 Surya Nepal Pvt. Ltd.
1990- ITC set up the Agri Business Division for export of agri-commodities. The
Division is today one of India's largest exporters.
1994- Consultancy from McKinsey & Co. to study businesses of company
2000- ITCs Packaging & Printing- Expressions
2000- Lifestyle Retailing business division with the Wills Sport range of
international quality relaxed wear
By 2001,undisputed leader in cigarette industry with popular brands- Gold Flake,
Scissors, Wills, India kings and Classic
2003- Classmate was launched to reach a wider student population.
Strategy of Organization to manage
diversity of Portfolio
ITC Maurya (Delhi), ITC Maratha (Mumbai), ITC Grand Central (Mumbai),
ITC Sonar (Kolkatta), ITC Windsor (Bengaluru),
ITC Kakatiya (Hyderabad), ITC Mughal (Agra).
2500
No Of Cigarettes
2000 1886
1771
1500
1000 844
618
488
500 303 243
85
0
Bangladesh
Average
Japan
India
Pakistan
China
USA
Nepal
Sri Lanka
World
Countries
Competitive context
Competition including international majors becoming more active.
Domestic illegal volumes still very strong. Along with smuggled
contraband, has emerged as substantive segment.
33
Hotels & Tourism industry
Foreign arrivals into India: 5 million appx. Vs. 35 million in China
The two nations were on par 2 decades ago at 750,000 arrivals
Today, Beijing alone has as many hotel rooms as the whole of India
Indias luxury rooms availability lower than even smaller East Asian
countries
80000
70000
60000
50000
40000
30000
20000
10000
0
HongKong Bangkok Singapore Malaysia India
35
ITCs Hotel Business
ITC-Welcome Group:
Welcome Hotels
Fortune Hotels
Welcome Heritage
Fastest growing hotel chain with highest operating efficiency
(PBDIT/Net Income @ 40%) amongst the 3 leading chains
Leverages unique service proposition and international alliance
with Starwood Hotels & Resorts - Luxury Collection / Sheraton
Capacity expansion underway at Chennai & Kolkata; plans for other
locations also being progressed.
Paperboards, Paper
&
Packaging
37
ITCs Paperboards Business
38
ITCs Paperboards & Packaging businesses
100000 TPA paper machine (to support Education & Stationery business
growth plans) Machine stabilized
40
Indian Leaf Tobacco industry
India the third largest producer of tobacco
However, Indias share is only 7% in world tobacco trade
Upgradation of tobacco consumption from other formats to cigarettes
will enable:
growing domestic base & larger opportunities for value added exports
ITC Indias largest buyer, processor, consumer & exporter of
cigarette tobaccos
6th largest leaf tobacco exporter in the world
Pioneering cultivation of flavourful Flue-cured, superior Burley and
Oriental tobaccos in India
Export business - robust growth in export volumes with improvement in
realization over the last 2 years
41
ITCs Agri Commodity Business
43
Branded Packaged Foods
Leverages:
Unique Agri sourcing skills
ITC Welcomgroups specialist cuisine & bakery knowledge
FMCG distribution synergies
ITC R&D Centre, Bangalore
6 chosen categories:
Staples
Aashirvaad Atta, Salt, Spices
Biscuits
Sunfeast
Salty Snacks
Potato chips, Bridge products : Bingo!
Confectionery
Candyman, mint-o
Noodles: Launched Sunfeast Yippee Noodles in Sept 10 in Karnataka and
Tamil Nadu markets
Ready to Eat
Kitchens of India (Ready to Eat, Conserves & Chutneys and Frozen Foods),
Aashirvaad (Instant Mixes & Cooking Pastes), Sunfeast Pasta 44
Branded Packaged Foods
Aashirvaad Atta:
Current market leader amongst national branded players; leverages the e-
choupal network for cost-quality optimisation and region specific
offerings
Sunfeast Biscuits:
Differentiated & innovative products; continues to build consumer
franchise; distributed & outsourced supply chain being ramped up
Targeted cost management actions shore up margins
46
Education & Stationery Products Business
Leverages print and paper know-how. Forward linkages with new paper
capacity (already commissioned).
An emerging (currently Rs 9000 cr stationery) market in India - growth
driven by increasing cross-cultural exposure, govt. spending on
education
Mostly commoditized. Offers opportunity for branding
Robust distribution network in place to scale up the Stationery business
significantly
Classmate brand already the most widely distributed brand in India. Scholastic
products launched
Branded Copier Paper Paperkraft footprint being enhanced. Enthusiastic
customer response based on green credentials.
Comprehensive portfolio approach with new variant/category launches
47
Safety Matches
Current industry consumer spend estimated at Rs. 1250 crores p.a. for 24
billion match boxes
Mass market moving from 0.50 p price point to Re 1.00.
ITC markets its brands with value added products across each price point
Support SMEs with complementary marketing strengths
AIM Indias largest selling Safety Matches brand
Successful acquisition of WIMCO Ltd. by Russell Credit
Key brands: Homelites, Ship, Cheetah Fight etc.
48
Incense sticks (Agarbattis)
Current industry consumer spend estimated at over Rs. 900 crores p.a.
ITC markets its brands with value added products across each price
point
Mangaldeep : second largest national brand in the country
Support cottage sector with complementary marketing strengths
Provides livelihood opportunities to more than 8000 under privileged
women
49
Personal Care Products
Current market size estimated at over Rs. 29000 crores (growing at 12% p.a.)
ITC presence established in Body Wash (Soaps, shower gels), Hair Care (Shampoos,
conditioner).
Product portfolio enlarged with the launch of Fairness cream Vivel Active Fair
Investments being made in Research & Development and strategic tax incentivized
manufacturing sites
50
Elephant that can dance
Core competencies
Distribution reach
Superior brand building
Effective supply chain management
6 million retail outlets
Directly services more than 2 million of these
retail outlets
Acknowledged skills
Performance Track Record -
Snapshot Rs crores
Cagr 95-96
Rs Crs 95-96 09-10
to 09-10
Gross Turnover 5115 26,260 12.4%
Net Turnover 2536 18,153 15.1%
Market Capitalisation 5571 100,475 22.9%
PBDIT 584 6,677 19.0%
PBIT 536 6,069 18.9%
PBT 452 6,015 20.3%
PAT (After Exceptional Items) 261 4,061 21.7%
EPS Rs (Equalised for 95-96) 0.7 10.73 21.4%
Net Worth 1121 14,064 19.8%
Capital Employed 1886 14,957 15.9%
ROCE% 28.4 40.6
Total Shareholders Returns % 24.3%
Source: itcportal.com
Source: itcportal.com
Source: itcportal.com
2009/10: Segment Rs crores
Segment Gross Revenue PBT Capital Employed
Agri Business
Hotels
Paperboards & packing
FMCG - Cigarettes
ITC InfoTech
Businesses for Tomorrow
In FMCG sector expected to triple in size to
over Rs 3,55,000 crores by 2018,
investment opportunity upto Rs. 8,000
crores over the next 7 to 10 years.
Paper, Paperboards &
Packaging investment opportunity of upto
Rs. 6,000 crores.
investment opportunity for ITC of upto Rs.
9,000 crores in the next 7 to 10 years
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