ITCs cigarette Business Essay Example

ITCs cigarette Business Essay Example ITCs cigarette Business Essay ITCs cigarette Business Essay High incidence of taxation continuously has been a deterrent to ITCs cigarette Business. Taxes amount to over 80% of the value added in the cigarette industry, hence making cigarettes increasingly unaffordable to the Indian tobacco consumer. There are about 200 million tobacco consumers in India, and of them, fewer than 14% can afford cigarettes, although cigarettes contributes 90% of total Central and State revenues generated from tobacco sector. Non-cigarette forms of tobacco consumption, constituting nearly 85% of tobacco consumption in the country, contribute barely 10% of Government revenues because of the difficulty of tax collection and the low tax yields that characterize this largely unorganized sector. There has been a prolonged punitive and discriminatory taxation regime at Central and State levels have made cigarettes unaffordable to the majority of tobacco consumers. Also, Non-cigarette forms of tobacco products are largely produced in the unorganized sector characterized by lower rates of tax and ineffective enforcement. As a result, there is a growing migration to lower value forms of tobacco consumption. Just to illustrate, in 2003, the effective excise duty on most tobacco products other than cigarettes is equivalent to about 12% of the net value of the product whereas on cigarettes this component is as high as 140%. Moreover in 2003, VAT was introduced on cigarettes already subject to a plethora of taxes. The export prospects were affected by the uncertainty and diminished market presence caused by the crop holidays in Andhra Pradesh. As a result, the export attractiveness of Indian tobaccos is caught up in a vicious cycle to the growing detriment of the tobacco farmers. Also, small base of domestic cigarette consumption discourages investment in RD and quality enhancement of tobacco varieties thereby sub-optimizing the export potential of tobacco. There was also threat from contraband trade of cigarettes aided with loopholes in the regulatory framework and lack of effective enforcement. In 2004-05, severe restrictions were imposed on the cigarettes industry with respect to advertisement, sale and consumption of tobacco products with the implementation of the Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade, Commerce, Production, Supply and Distribution) Act, 2003 (COTPA). All these in totality made cigarette business less profitable and more challenging. As a result, ITC started diversifying into multiple businesses. While exploring new opportunities, for long term growth, ITC depended on its multiple strengths synergies that it could bring about from its existing businesses. We discuss few of such businesses in detail in the following sections. The mill at Bhadrachalam produces 240,000 TPY of papers and boards and has three board machines and two smaller paper machines. The mill produces paperboards for the packaging and graphics segments with a product range that includes Cyber XLPac (folding box boards), Pearl/Saphire Graphik (solid bleached boards) high value boards and the Ecoviron range of recycled boards. It also makes liquid packaging boards for Tetrapak in India. One of the big innovations at this mill has been the commissioning of an Elemental Chlorine Free (ECF) fibre line. This is a state-of-the-art line which meets the effluent norms set by the Ministry of Environment and Forests of the Government of India and thus ties in with the Environment theme in its Triple Bottomline. The Tribeni Tissues unit was initially part of the Wiggins Teape Company, UK from 1961 to 1988. In 1992, it merged with ITC Ltd. The mill and its paper machines were refurbished with the latest technology. It has a capacity of 33,000 TPY with a product range that includes cigarette tissues, fine papers, packaging papers and specialties. The range from papers produced is quite diverse including Cigarette Tissues and Components, Laminating Base Tissue, Acid-Free and Anti-Rust Tissues, Low Grammage Printing Papers, Di cor Papers to Insulation Grade and Medical Grade Papers. The unit is ISO 9001:2000 version and ISO 14001 accredited. ITC has another paperboard facility at Coimbatore, Tamil Nadu which was acquired from BILT Industrial Packaging Company in 2004. This mill manufactures Coated Duplex boards Greyback and Whiteback made with 100% recycled materials and has a single board machine with 90,000 TPY of capacity. The products are continuously monitored for quality using a Siemens DCS system and Measurex QCS system. Quality as in other ITC units is a big focus and the mill has continuously demonstrated quality having achieved ISO 9001, ISO 14001 and OHSAS 18001 certifications. The delivery of rolls and sheets is ensured by a modern Finishing House with short turnaround times. Eco Naturo and Eco Naturo-HS are the two grades of Coated Duplex Grey Back board made from this unit. For almost the first time in India, a customer has the option to buy a higher bulk and stiffness of Greyback Board (GD2 grade) for his carton requirements. The unit at Bollarum near Hyderabad produces 5000 TPY of Cast Coated Papers and Boards, 10,000 TPY of Poly Extrusion coated boards and 10000 TPY of C2S art boards and Ivory cards. It is the market leader in South Asia in carton boards and ranks second in turnover within the Indian paper industry. Most leading Fast Moving Consumer Goods Brands in India use paperboard manufactured at this location. Exports constitute about 20% of sales and cater to international markets in Malaysia, Sri Lanka, Bangladesh, Iran, Australia, UAE, Turkey, China, Singapore, UK, Greece, Germany and USA. The unit is ISO 9001:2000 series accredited.