INTRODUCTION
ITC is a name that resonates with many across India. A company founded over 114 years ago, it holds an iconic position in the country’s business landscape. From its humble beginnings as the Imperial Tobacco Company in 1910 to becoming one of India’s top 10 companies today, ITC’s success story is a testament to the power of diversification, vision, and strategic planning.
But what truly makes ITC stand out? Well, it’s not just the fact that it dominates the cigarette market with a massive 80% market share. Over the decades, ITC has undergone a remarkable transformation, diversifying into new industries that have propelled it to become one of the second-largest FMCG companies in India, with a revenue that surpasses ₹79,500 crore.
The Journey of ITC: From Cigarettes to a Multifaceted Business Empire
ITC’s dominance in the cigarette industry was unchallenged for many years. The company’s turnover in 2023 was ₹79,500 crore, but a significant portion of this revenue, nearly ₹24,000 crore, came from the cigarette business. Today, however, only 37% of ITC’s revenue comes from cigarettes, and the remaining 63% stems from other sectors. This diversification strategy allowed ITC to become much more than just a tobacco giant.
So, what motivated ITC to diversify its operations?
The Need for Diversification
Two main factors played a crucial role in ITC’s decision to diversify:
- Cigarettes in the “Sin” Industry: Cigarettes are often seen as a “sin” product due to their negative health impact. Governments worldwide have imposed heavy regulations on tobacco companies, restricting advertising, raising taxes, and imposing stricter rules. ITC anticipated that this trend would intensify, making it necessary to find alternative sources of revenue.
- Economic Liberalization in the 1990s: The liberalization of India’s economy in the early 1990s opened doors for foreign companies and new products. ITC saw an opportunity to capitalize on the changing business environment and diversify its portfolio, leveraging its established infrastructure and capital.
This strategic shift didn’t just help ITC survive—it allowed the company to thrive in an increasingly competitive market.
The Power of Diversification: ITC’s Expanding Portfolio
In its early years, ITC was solely focused on tobacco and cigarettes. But from 1990 onwards, it ventured into a number of new sectors that now make up a significant portion of its revenue.
By 2023, ITC’s diversified revenue streams included:
- FMCG: 25% of the revenue comes from the fast-moving consumer goods (FMCG) sector, which includes some of India’s most popular food, personal care, and lifestyle brands.
- Agriculture Exports: 20% of the revenue is derived from ITC’s agricultural exports, making the company India’s largest private grain exporter.
- Paperboard Packaging: 11% of ITC’s revenue comes from this division, which produces sustainable paperboard and packaging materials.
- ITC Hotels: 4% of the revenue comes from the hospitality sector, where ITC owns a range of luxury hotels under the ITC Welcome Group.
While the cigarette business still generates substantial profit, it is no longer the sole contributor to ITC’s success. Instead, the company’s diversified approach has enabled it to remain competitive and adaptable, ensuring long-term sustainability.
The Key Sectors Driving ITC’s Success
Let’s dive into the main areas where ITC has made its mark:
- FMCG: ITC’s FMCG division has been a game-changer for the company. With over 25 brands under its belt, ITC has become a dominant player in categories ranging from food and beverages to personal care. Brands like Aashirvaad atta (flour), Sunfeast biscuits, Bingo snacks, Yippee noodles, and Engage deodorants have become household names. ITC’s success in this sector is attributed to its deep connections with farmers, strong distribution network, in-house research and development, and the financial backing provided by its cigarette business.
- Agriculture Exports: ITC’s relationship with farmers goes back to its tobacco days. By leveraging these connections, ITC expanded into agriculture exports and today stands as India’s largest private grain exporter. Through initiatives like the “E-Choupal” program, ITC connects millions of farmers across India to a global market. This agricultural division now contributes a significant portion of the company’s revenue.
- Paperboard Packaging: In 1989, ITC acquired Bhadrachalam Paperboard, and after several years of growth and development, the company transformed this division into one of its most profitable ventures. Today, ITC is a leader in paperboard packaging, which accounts for a sizable chunk of its overall revenue.
- ITC Hotels: Although the smallest contributor to ITC’s revenue, its hospitality arm still plays a role in shaping the company’s overall portfolio. ITC has established several luxury hotels, offering a world-class experience to travelers. Though this segment faced challenges and was eventually spun off into a separate entity, it still forms part of ITC’s expansive portfolio.
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Learning from ITC’s Success: Key Business Lessons
- Adapt to Changing Times: ITC’s decision to diversify was driven by foresight. The company recognized the risks of relying too heavily on cigarettes and made strategic moves to expand into sectors with greater growth potential.
- Strong Fundamentals Matter: Diversification worked for ITC because they had a solid base. The cigarette business provided the necessary capital and resources to experiment with new ideas. Diversification is not always a guaranteed success, but having strong fundamentals can keep a business afloat during tough times.
- Think Long-Term: As ITC shows, it’s essential to think long-term and not get complacent. The company’s vision and strategic planning have allowed it to weather market changes and continue growing.
- Learn from Failures: Not every diversification move worked for ITC. For example, their greeting card business, ITC Expression, and their clothing line, Wills Lifestyle, didn’t succeed. However, ITC learned from these failures and moved on, a lesson many small and medium-sized enterprises can benefit from.
ITC’s Stock: A Testament to Strong Business Execution
While ITC’s stock has seen fluctuations over the years, the company’s consistent performance and successful diversification strategy have led to remarkable growth. ITC’s stock recently hit new highs, with the company’s market value surpassing ₹6 lakh crore. This surge reflects the strength of ITC’s diversified portfolio, which is now less reliant on the tobacco sector.
Conclusion
ITC’s journey from a tobacco company to a diversified conglomerate is a powerful example of strategic planning, adaptability, and forward-thinking leadership. The company’s ability to innovate, learn from its mistakes, and capitalize on new opportunities has positioned it as one of India’s most successful business giants. As ITC continues to expand its FMCG portfolio, agriculture exports, and other ventures, its future looks brighter than ever.
For aspiring entrepreneurs, business students, and investors alike, ITC offers a valuable case study in the power of diversification. With the right strategies, any company can evolve, grow, and thrive in an ever-changing market landscape.
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