ITC sees green shoot in cigarettes business after years

After years of subdued growth and loss in market standing, country’s largest tobacco company ITC Ltd. has finally managed to turn around its cigarettes business. Backed by a favourable tax structure, renewed focus on innovations and its massive distribution reach, the low growing business is now back to the high growth trajectory.

According to the company’s management, stability in taxation since April 2018, has helped its cigarettes business achieve double digit growth. During the period between April, 2018 and January, 2020, over July, 2017 to March, 2018, its cigarettes business revenue grew by 10.2 per cent. Between FY2013 and FY2017, revenue from the segment had grown by 4.7 per cent CAGR (compound annual growth rate).

Further, in the past 18 months, it has gained 100 basis points in its market standing, said Sandeep Kaul, divisional chief executive, cigarettes business at ITC. According to him, ITC has brought in over 100 innovations in the last five years and its brands are now “leaders in every market segment”.

To FUEL its future growth, the company now plans to maximise cigarettes potential in the tobacco basket, counter illicit trade and continue reinforcing market standing. ITC’s capability in making filters and capsules in-house, will help it save costs. According to Kaul, “the trajectory post second wave points to a faster recovery versus the first wave of the pandemic.

ITC’s bet on innovations, in fact, has yielded rich dividends for the segment in recent times. Take Classics, for instance. The firm’s flagship brand got 25 per cent of its sales from the four new variants that ITC launched under it in last five years. Gold Flake, another crown jewel in its cigarettes business for over 100 years, got 10 per cent of its sales from new launches in five years. In fact, ITC has launched over 10 new variants under the brand in last one and half years, in its bid to “rapid diversification into new segments”

In fact, 11 per cent of its volume growth in recent times came from new variants, Kaul told market analysts.

To differentiate its portfolio in fast changing market, where Gen-Z consumers are now taking a larger share from Gen-X and the millennials, ITC now plans to expand its premium and modern variants and come up with 5 pieces pack and fresh seals.

Further, ITC’s massive distribution reach is being augmented as newer channels open up. Currently, its cigarettes are sold through 7.1 million outlets - more than double of its nearest competitor, he claimed. ITC has a direct network of reaching over 1.4 lakh markets and has "over 10,000 re-distribution partners that are customised for micro geographies”.

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