The tobacco king: ITC
The primary reason for ITC's market leadership and edge is its backward integration
By Yash Rohra | Dec 13, 2017
After explaining the filters and mentioning which companies were successful in passing through them in the first part, we continue with the series by bringing before you one cash flow leader each day. Today, we bring before you the tobacco to hotel conglomerate-ITC
ITC, founded in 1910, is India's largest tobacco company. Its product portfolio includes cigarettes, stationery products, hotels, FMCG and agri commodities. ITC has a near monopoly in the cigarette segment, making eight out of every ten cigarettes sold in India. In the cigarette segment, its brands Classic and Goldflake dominate. In FMCG, Sunfeast biscuits, Aashirvaad Atta and Bingo chips figure in many household shopping baskets. In the hospitality segment, ITC Fortune and ITC Welcome are top-of-the-mind brands for travellers.
The primary reason for ITC's market leadership and success is its backward integration ('producing the buy rather than buying the produce'). ITC procures its key raw materials directly from producers, which helps it retain superior operating margins of 36 per cent. The cigarette segment contributed 61 per cent of its revenues and 92 per cent of its operating profits in FY17. Over the last five years, ITC generated over Rs 40,000 crore in cash before deducting non-cash expenses such as depreciation. Its backward-integration capability, distribution network, reputed brands and customer loyalty give its business an edge over others.
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