Industry Analysis

Tobacco Sector
Abha Mahapatra
BFIA (75003)
SSCBS

Contents
Sector Analysis
I. Surveys and Statistics
II. Government Initiatives
III. Market Share
IV. SWOT Analysis
V. Porters Five Forces Model
VI. BCG Matrix
VII.Lifecycle Analysis
VIII.Ratio Analysis

Companies studied
ITC Limited
Godfrey Phillips India
VST Industries Limited

Tobacco Sector Analysis

Sector at a Glance
One of the most profitable industries in the
world.
Industry worth INR 58730 crores in 2009.
CAGR-8.5%
By 2014 CAGR will be 6.9% and the forecasted
worth is INR 81790 crores.

Global Adult Tobacco Survey India

In 2009 Global Adult Tobacco Survey India, was
conducted across urban and rural regions of 29 states
in India to understand the tobacco consumption trends
in the country. The following were the results observed
in the Indian scenario:

Education

Proportion
users (%)
and 21%

Secondary
Education
higher
Primary Education
Less than Primary Education
No formal schooling

33%
45%
44%

of

Tobacco

Tobacco use among males by age category

12-18
Years

19-30
Years

31-40
Years

41-50
Years

51-60
Years

Sample

8587

13216

7805

5920

5168

Tobacco
users

1860

7026

5186

4193

3638

Prevalence

22

54.9

67.6

72.0

71.5

Indian Tobacco Market: Share of top five players vs other players,

by category, 2009
120

Market
share in
Percentage

100

80

Column1
Market Share of Top 5
Companies

60

40

20

0
Chewing Tobacco

Cigarrettes

Cigars

Smokeless Tobacco

Leading Companies and Popular Brands (Smokeless Tobacco Company

Shares Retail Volume (%) )

Compa
ny
Dhariw
al
Industri
es Ltd
Dhara
mpal
Satyap
al Ltd
Som
Sugand
h
Industri
es Ltd
Shree
Meena
kshi
Food
Product
s Pvt
Ltd
Kothari

2001

2002

2003

2004

2005

2006

2007

2008

2009

11.5

11.8

11.8

12

12

12.3

12.3

12.5

12.5

7.8

8.2

8.8

9.3

9.5

8.8

7.8

7.2

3.7

3.8

4.3

4.2

4.7

5.5

2.3

2.5

2.5

2.8

2.8

3.2

3.5

4.5

4.5

4.2

4.3

4.3

3.5

2.8

The Cigarette Industry

Indias total cigarette production is valued at
'22,000 crore, of which 12 per cent is exported.
The cigarette market is dominated four key players
ITC, Godfrey Phillips, VST and GTC.
Cigarette sales in the country saw a drop in 2009
over 2008 due to high excise duties and other taxes.
The government has banned foreign direct
investment in cigarette manufacturing for domestic
consumption or exports, closing the doors for
companies like Japan Tobacco, BAT and so on.

Historic India Cigarette Market Size

Retai
l
Volu
me
(billi
on
stick
s)

200
0

200
1

200
2

199
9
99.6 98.7 89.3 91.9

200
3

200
4

94.5 96.5

200
5

200
6

200
7

200
8

100 101. 99.8 91.2

1

200
9

90.3

Leading Cigarette Brands Promoted in India

Brand
Gold Flake
Wills
Scissors
Four Square
Capstan
Bristol
Charminar
Red & White
Charms
Cavenders

Company name
ITC Group
ITC Group
ITC Group
Godfrey Phillips India
Ltd
ITC Group
ITC Group
VST Industries Ltd
Godfrey Phillips India
Ltd
VST Industries Ltd
Godfrey Phillips India
Ltd

2009
31.2
18.2
8.4
7.9
7.4
6.9
4
3
3
2.5

Government Initatives
1975: The Cigarettes Act 1975 made a statutory health
warning mandatory on all cigarette packets.
1980: The central and several state governments
imposed restrictions on tobacco trade and initiated
efforts for comprehensive legislation for tobacco
control.
1990: The Central government issued a directive for
prohibiting smoking in public places, banned tobacco
advertising on national radio and TV and made display
of statutory health warnings on chewing tobacco
products mandatory.

 1991: The Central government directed the

Central Board of Film Certificate to comply with
the Cinematography Act 1952.
1995: The Parliamentary Committee on
Subordinate Legislation examined the existing
Cigarette Act and made specific suggestions for
stronger provisions..
1999: Ministry of Railways banned sale of
cigarettes and bidis on railway platforms and
inside trains.
2000: Central Government banned tobacco
advertisements on cable TV.

 2001:Ministry of Railways imposed ban on sale of gutka

at railway stations, concourses, reservation centres and
inside trains. The National Commission on Human
Rights at the S.E. Asia regional consultation meeting,
advocated for tobacco control as an essential measure to
protect human rights
2001-03: The states of Tamil Nadu, Kerala, Andhra
Pradesh, Maharashtra, Bihar, Goa and Madhya Pradesh
banned the production and sale of gutka and pan masala
under the Prevention of Food Adulteration Act.
2008:A nationwide ban on smoking at the workplace and
in restaurants, hotels, pubs, public transport (buses,
trains and metros), airports and railway stations,
educational institutions, cafes, theatres and other public
places came into effect from 2 October 2008.
2o11:Govt bans FDI in cigarette manufacturing

Growth Potential
Market Share

Chewing Tobacco 21%

Bidis 43%
Mfg Exports 2%
Un-mfg exports 19%
Cigarettes 15%

Market Share
Indian Cigarette pie
Market share

ITC 72%
GTC 8%
VST 8%
GPI 22%

SWOT Analysis
Strengths
India one of the largest manufacturer of
Tobacco.
Export Potential.
Amounts for 5.8% of the international trade and
ranks 5thafter Brazil, U.S.A. Turkey and
Zimbabwe.

SWOT contd.
Weaknesses
Increased taxation
Badly developed relations between producer and
buyer.

SWOT contd.
Opportunity
Research for development of alternative uses of
Tobacco in view of anti-smoking campaign.
Significant opportunity for exports.

SWOT contd.
Threats
Total ban on direct and indirect advertisements
of all tobacco products.
Prohibition on sponsorship of sports and
cultural events which encourage tobacco use;
ban on smoking in public places.
Ban on smoking in public place.
Eroding social acceptability of smoking

PEST Analysis
Political Factors
Challenging environment with respect to
government regulation.
Taxation.

PEST contd.
Economic Factors
India among top three producers in the world.
Among top 10 exporter.
2.3 million persons depended on this sector for
livelihood.
Total net value added by all enterprises averaged
Rs 15000 million.

PEST contd.
Social Analysis
Growing public concern against increasing
consumption of tobacco.
Restrictions by government has made the
promotion of tobacco brands almost impossible.

PEST contd.
Technological analysis
Great inventory control.
Logistic Support.
I. Hardware investment(high shelves, large
storehouses etc.)
II. Software investment(GPS monitoring circuits,
long-distance clients landing enquiries, GIS
circuit optimization, and online method of
electronic clearing, etc.)

BCG Matrix
ITC - CIGARETTES

GTCI
VST

?
GPI

Market attractiveness & Competitive

strength is also important.

Porters Five Forces

analysis
New Entries:
Buyers bargaining powers:
Oligopoly market situation.
Suppliers bargaining power:
Fragmentation, consolidation &
integration.
Low switching costs
Threat of substitutes:
Depends on buyer to buyer.
Some are Brand Loyalists.
Competitive rivalry:
New innovative products by
rivals.

Lifecycle Analysis

Godfrey Philips
India and VST
Industries

ITC Ltd

Ratio Analysis

Liquidity Ratio
Profitability Ratio
Efficiency Ratio
Solvency Ratio

Liquidity Ratios
Current Ratio
2.5
2
1.5

ITC
GPI
VST

1
0.5
0
2005 2006
2011
2010
ITC
GPI
VST

1.189 1.009
1.63 1.97
0.78 0.69

2007
2009

2008 2009 2010

2008
2007
2006

1.73
1.66
0.64

1.58
1.52
0.45

1.63
1.75
0.55

2005

1.44 1.167
1.66 1.27
0.54 0.78

 Acid Test Ratio

1.4

1.2
1
0.8

ITC
GPI
VST

0.6
0.4
0.2
0
2005
2011
ITC
GPI
VST

2006
2010

2007

2008

2009

2009

2008

2010
2007

1.1 1.022 1.201 1.065 1.231

0.615 0.67 0.46
0.5 0.71
0.15 0.11 0.12 0.11
0.1

2006

2005

1.15 0.79
1.26 0.494
0.2
0.4

Solvency Ratios
Debt Equity Ratio
0.3

0.25
0.2
ITC
GPI
VST

0.15
0.1
0.05
0
2005 2006
2011
2010

2007 2008 2009 2010

2009
2008
2007

2006

2005

ITC

0.01

0.01

0.01

0.02

0.02

0.01

0.03

GPI

0.29

0.17

0.17

0.21

0.15

0.21

0.19

VST

0.06

0.02

0.01

0.04

0.05

0.02

0.24

Profitability Ratios
Operating Profit Margin
40
35
30
25

ITC
GPI
VST

20
15
10
5
0
2005
2011
ITC
GPI
VST

2006
2010

2007
2009

2008

2009

2008

2010
2007

2006

2005

34.33 33.13 31.36 32.77 31.7 33.39 34.99

12.59
12.09 14.65 18.6 17.5 13.3 14.6
23.38 20.74 19.34 25.31 25.21 35.8 30.09

 Return on Capital Employed

45
40
35
30
ITC
GPI
VST

25
20
15
10
5
0
2005
2011

2006 2007 2008 2009

2010
2009
2008

2010
2007

2006

2005

ITC

44.94

42.64

34.6

36.60

37.24

27.41

18.74

GPI

24.74

19.31

21.99

23.58

24.19

36.26

33.09

VST

47.47

30.50

32.87

34.87

36.37

20.95

23.28

 Return on Equity
2.5
2
1.5

ITC
GPI
VST

1
0.5
0
2005

2006

2007

2008

2009

2010

2011

2010

2009

2008

2007

2006

2005

ITC

1.37

1.33

1.16

1.2

1.21

1.11

0.99

GPI

2.05

2.17

2.05

1.909

1.9

0.23

2.179

VST

2.27

2.04

1.6

1.5

1.67

1.73

1.88

 Earning per share

120
100
80
ITC
GPI
VST

60
40
20
0
2005 2006
2011
2010

2007 2008 2009 2010

2009
2008
2007

2006

2005

ITC

6.49

5.34

8.66

8.29

7.19

6.08

4.91

GPI

159.67

113.84

104.73

107.73

84.73

57.82

61.16

VST

61.53

40.18

40.04

37.79

35.68

46.76

34.98

 Dividend per share

35
30
25
20

ITC
GPI
VST

15
10
5
0
2005

2006

2007

2008

2009

2010

2011

2010

2009

2008

2007

2006

2005

ITC

4.45

10

3.7

3.5

3.1

2.65

31

GPI

35

25

25

25

25

22.5

22

VST

45

30

30

20

20

2.5

 P/E Ratio
45
40
35
30
ITC
GPI
VST

25
20
15
10
5
0
2005

2006

2007

2008

2009

2010

2011

2010

2009

2008

2007

2006

2005

ITC

28.2

24.7

24.9

20.9

32.1

18.2

18.2

GPI

12.5

17.8

7.2

12.5

14.2

VST

61.53

40.18

40.04

37.79

35.68

27.91

34.98

Turnover Ratios

Fixed Asset Turnover Ratio

7

6
5
4

ITC
GPI
VST

3
2
1
0
2005
2011

2006
2010

ITC

1.69

1.58

1.44

1.59

GPI

3.18

3.31

3.18

VST

1.85

1.73

1.49

2007 2008 2009

2010
2009
2008
2007

2006

2005

2.42

2.31

2.01

3.41

6.15

4.82

4.38

1.47

1.72

3.01

6.49

 Inventory Turnover Ratio

14
12
10
8

ITC
GPI
VST

6
4
2
0
2005

2006

2007

2008

2009

2010

2011

2010

2009

2008

2007

2006

2005

ITC

6.05

6.04

5.26

5.51

3.76

3.82

3.91

GPI

8.76

7.52

6.43

7.96

5.18

10.15

5.47

VST

5.94

6.31

7.52

10.24

12.62

6.05

5.56

 Accounts Receivables Turnover Ratio

120
100
80
ITC
GPI
VST

60
40
20
0
2005

2006

2007

2008

2009

2010

2011

2010

2009

2008

2007

2006

2005

ITC

23.91

24.31

21.32

20.43

20.79

18.22

20.07

GPI

33.58

35.24

41.93

45.82

56.81

95.67

90.96

VST

40.96

48.52

80.64

67.63

69.55

6.42

5.77

ITC
ONE OF INDIAS MOST VALUABLE
CORPORATIONS
One of Indias premier private limited groups
completing 100 years.
Large & established Distribution Networks.
Annually turnover of the co. is RS 2888 Crore
It is one of the eight Indian companies to feature in
Forbes A-list in 2004.
It has more then 21,000 employees at more then 60
location across India with 4,86,000 shareholders.
Ranks No. 4 among Indian listed Private Sector
Companies by market cap. (@ April 09)
Rated as- one of Indias Most Respected Companies
(IMRB-Business world Survey 2006)

SWOT Analysis
Strength

Weakness

Biggest and the largest player

in the Indian tobacco market
with a market share of 80%.
Its Gold Flake tobacco brand is
the largest FMCG brand in
India - and this single brand
alone holds 70% of the tobacco
market.

It still has to consolidate its

foot in the cigar market largely
dominated by Godfrey Philips.

SWOT Analysis
Opportunities

Threats

ITC is moving into new

and emerging markets
like developing countries
of Eastern Europe, Africa
etc.

The obvious threat is

from competition, both
domestic and
international.
Health hazard
Increasing tax in
Cigarettes

Godfrey Phillips India ltd.

The second largest player in the Indian cigarette
industry.
Annual turnover exceeds INR 1800 crore
(approx. US $369.6 million)
Has two major stakeholders, one of India's
leading industrial houses - the K. K. Modi Group
and one of the world's largest tobacco
companies, Philip Morris.

SWOT Analysis
Strength

Weakness

The second biggest tobacco

company in India
The first and only tobacco
company to organize the
fragmented cigar market in
India and secure its position as
the market leader in the cigar
distribution.
Partnering with some of the
top most players in the
international tobacco industry.

low popularity of most of its

products
No sole authority

SWOT Analysis

Opportunities
Already present in the Middle
East, West Africa, South East
Africa and South East Asia,
GPI can strengthen its position
as an international player by
entering new markets.
Even expanding market share
in the Indian tobacco market
is an opportunity

Threats
ITC getting into the cigar
market
It has a mere 12% in market
share

About VST Industries

VST Industries Ltd. is a public conglomerate company
headquartered in Hyderabad, India. The company
manufactures and distributes cigarettes. Its Market
Capitalization is 844.49, PE Value: 15.70 and
Dividend: 5.49.The company has its registered office
in Hyderabad. It started off as the formerly Vazir
Sultan Tobacco Company, commonly known
as VST and shares collobration with British American
Tobacco group of the United Kingdom. It is fully
independent and registered as VST Industries Ltd in
the year 1983.