tobacco sector analysis
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Industry AnalysisTobacco Sector
Abha MahapatraBFIA (75003)SSCBS
Contents
•Sector AnalysisI. Surveys and StatisticsII. Government InitiativesIII.Market ShareIV. SWOT AnalysisV. Porter’s Five Forces ModelVI. BCG MatrixVII.Lifecycle AnalysisVIII.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’
Education Proportion of Tobacco users (%)
Secondary Education and higher 21%
Primary Education 33%
Less than Primary Education 45%
No formal schooling 44%
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:
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
Chewing Tobacco Cigarrettes Cigars0
20
40
60
80
100
120
Column1Others
Market share in Percent-age
Smokeless Tobacco• Leading Companies and Popular Brands (Smokeless Tobacco
Company Shares ‐ Retail Volume (%) )
Company
2001 2002 2003 2004 2005 2006 2007 2008 2009
Dhariwal Industries Ltd
11.5 11.8 11.8 12 12 12.3 12.3 12.5 12.5
Dharampal Satyapal Ltd
7.8 8.2 8.8 9.3 9.5 8.8 7.8 7 7.2
Som Sugandh Industries Ltd
3.7 3.8 4.3 4.2 4 4.7 5 5.5 6
Shree Meenakshi Food Products Pvt Ltd
2.3 2.5 2.5 2.8 2.8 3 3 3.2 3.5
Kothari Products Ltd
4.5 4.5 4.2 4.3 4.3 4 3.5 2.8 2
Others 70.2 69.2 68.4 67.4 67.4 67.2 68.4 69 68.8
The Cigarette Industry
• India’s 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
Retail Volume (billion sticks) 1999
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
99.6 98.7 89.3 91.9 94.5 96.5 100 101.1 99.8 91.2 90.3
Leading Cigarette Brands Promoted in India
Brand Company name 2009
Gold Flake ITC Group 31.2
Wills ITC Group 18.2
Scissors ITC Group 8.4
Four Square Godfrey Phillips India Ltd 7.9
Capstan ITC Group 7.4
Bristol ITC Group 6.9
Charminar VST Industries Ltd 4
Red & White Godfrey Phillips India Ltd 3
Charms VST Industries Ltd 3
Cavenders Godfrey Phillips India Ltd 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
Market attractiveness & Competitive strength is also important.
ITC - CIGARETTES GTCI VST
GPI
?
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.
Porter’s Five Forces analysis
Lifecycle Analysis
ITC LtdGodfrey Philips India and VST Industries
Ratio Analysis
•Liquidity Ratio•Profitability Ratio•Efficiency Ratio•Solvency Ratio
Liquidity RatiosCurrent Ratio
2011 2010 2009 2008 2007 2006 2005
ITC 1.189 1.009 1.73 1.58 1.63 1.44 1.167GPI 1.63 1.97 1.66 1.52 1.75 1.66 1.27VST 0.78 0.69 0.64 0.45 0.55 0.54 0.78
2005 2006 2007 2008 2009 20100
0.5
1
1.5
2
2.5
ITCGPIVST
•Acid Test Ratio
2011 2010 2009 2008 2007 2006 2005
ITC 1.1 1.022 1.201 1.065 1.231 1.15 0.79GPI 0.615 0.67 0.46 0.5 0.71 1.26 0.494VST 0.15 0.11 0.12 0.11 0.1 0.2 0.4
2005 2006 2007 2008 2009 20100
0.2
0.4
0.6
0.8
1
1.2
1.4
ITCGPIVST
Solvency RatiosDebt Equity Ratio
2011 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
2005 2006 2007 2008 2009 20100
0.05
0.1
0.15
0.2
0.25
0.3
ITCGPIVST
Profitability RatiosOperating Profit Margin
2011 2010 2009 2008 2007 2006 2005
ITC 34.33 33.13 31.36 32.77 31.7 33.39 34.99GPI 12.59 12.09 14.65 18.6 17.5 13.3 14.6VST 23.38 20.74 19.34 25.31 25.21 35.8 30.09
2005 2006 2007 2008 2009 20100
5
10
15
20
25
30
35
40
ITCGPIVST
•Return on Capital Employed
2011 2010 2009 2008 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
2005 2006 2007 2008 2009 20100
5
10
15
20
25
30
35
40
45
ITCGPIVST
•Return on Equity
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
2005 2006 2007 2008 2009 20100
0.5
1
1.5
2
2.5
ITCGPIVST
•Earning per share
2011 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
2005 2006 2007 2008 2009 20100
20
40
60
80
100
120
ITCGPIVST
•Dividend per share
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 3 2.5
2005 2006 2007 2008 2009 20100
5
10
15
20
25
30
35
ITCGPIVST
•P/E Ratio
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
2005 2006 2007 2008 2009 20100
5
10
15
20
25
30
35
40
45
ITCGPIVST
Turnover Ratios•Fixed Asset Turnover Ratio
2011 2010 2009 2008 2007 2006 2005
ITC 1.69 1.58 1.44 1.59 2.42 2.31 2.01
GPI 3.18 3.31 3.18 3.41 6.15 4.82 4.38
VST 1.85 1.73 1.49 1.47 1.72 3.01 6.49
2005 2006 2007 2008 2009 20100
1
2
3
4
5
6
7
ITCGPIVST
•Inventory Turnover Ratio
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
2005 2006 2007 2008 2009 20100
2
4
6
8
10
12
14
ITCGPIVST
•Accounts Receivables Turnover Ratio
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
2005 2006 2007 2008 2009 20100
20
40
60
80
100
120
ITCGPIVST
ITC ONE OF INDIA’S MOST VALUABLE
CORPORATIONSOne of India’s 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 India’s Most Respected Companies (IMRB-Business world Survey 2006)
SWOT Analysis Strength• 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.
Weakness• It still has to consolidate
its foot in the cigar market largely dominated by Godfrey Philips.
SWOT Analysis Opportunities• ITC is moving into
new and emerging markets like developing countries of Eastern Europe, Africa etc.
Threats• 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• 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.
Weakness• 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.