| MUMBAI, Sept 6
MUMBAI, Sept 6 India's biggest cigarette maker
is going on a health kick.
ITC Ltd sells 80 percent of the cigarettes in the
world's second most populous country where 275 million people
use tobacco products.
But as India follows the rest of the world in adopting
anti-smoking regulations, the company's core tobacco business is
getting squeezed and it is venturing into dairy products, drinks
and perhaps even he a lthy breakfast foods to tr y to expand its
money-losing consumer products business.
"Indians are turning health-conscious in their food choices,
so health and nutrition will be a very strong focus area for us
in the coming years," Chitranjan Dar, chief executive of ITC
Foods, told Reuters in a phone interview.
ITC, India's fifth most valuable company with a market
capitalisation of $38 billion, already makes cookies, crackers
and potato chips, so expanding into dairy and breakfast foods is
not that big of a stretch.
But healthy food marks a sharp turn for a company best known
for cigarettes. Although ITC got into the food business a decade
ago, cigarettes account for half the company's revenue and even
its initials are a throwback to its century-old roots when it
was known as Imperial Tobacco. The company is 30.8 percent owned
by British American Tobacco.
Building market share in food and consumer products may be
difficult. With the exception of packaged flour, where ITC holds
a leading position, the company has not won more than 15 percent
of the market for any product category in which it competes.
It has spent 45 billion rupees ($809 million) building up
its food and consumer product segments over the past 10 years,
according to analysts.
"No other consumer company has invested such sums of money
without creating a relevant share in any category," said Nikhil
Vora, managing director at Mumbai-based IDFC Securties.
Vora's firm downgraded the stock to underperform from
outperform after Australia barred the use of logos on cigarette
packs on Aug. 15, sparking speculation that India's regulators
Investors initially knocked $1.3 billion from ITC's market
value after Australia's move, although the stock has since
recovered, in part because most smokers in India buy cigarettes
in single sticks, not packs.
An investor favourite for its defensive characteristics, ITC
shares have risen 32 percent this year, outpacing the 13 percent
rise in the index.
ITC makes Sunfeast biscuits, Bingo snacks and the Fiama Di
Wills range of soaps and shampoos, competing with the likes of
Hindustan UnileverLtd, Procter & Gamble Co,
Godrej Consumer Products Ltd and Dabur India Ltd
in a price-sensitive market worth $13 billion and
growing at 15-20 percent a year.
Its consumer goods sales rose 24 percent to 55.3 billion
rupees in the year to March, accounting for 22 percent of total
ITC revenue, although the business was a drag on overall profit,
losing 1.96 billion rupees before interest and tax.
It aims to triple revenue from consumer goods over the next
5 to 7 years.
"What we have achieved is not bad for a business that is a
decade old in this space," ITC's Dar said, adding that parts of
its consumer goods business were "profit positive."
CIGARETTES AND FOOD
ITC is not the first company to try to mix cigarettes and
food. Tobacco giant Altria Group Inc, formerly known as
Philip Morris, bought Kraft Foods in 1988, although it later
spun off the food company and has returned its focus to tobacco.
Tighter regulations add urgency to ITC's food drive.
India has followed global trends in tobacco restrictions,
banning smoking in public places in 2008 and a year later
requiring graphic health warnings on cigarette packages.
It has steadily raised taxes on tobacco products, most
recently by 20 percent. Analysts said that contributed to an
unexpected 3 percent drop in ITC's cigarette volume sales in the
Some Indian states are also raising taxes. Uttar Pradesh,
the most populous, in July raised the value-added tax on
cigarettes to 50 percent from 17.5 percent, prompting
speculation that others will hike taxes too.
ITC has set up 7 new plants this year to support its
consumer products expansion, and plans to test new categories
including coffee, tea and dairy products that can be stored at
"Almost all the categories they operate in this space
already have large established players, so clawing away market
share from them wont be easy," said Pinakiranjan Mishra a
partner with Ernst and Young who focuses on consumer products
"Their distribution strength can make a difference but their
aim to triple growth in a few years still looks very tough," he