India’s largest cigarette maker ITC eyes ‘innovative future-ready products’

By: | Updated: June 24, 2016 6:56 AM

India's largest cigarette maker ITC is gearing up to develop “innovative future-ready products” along with strengthening its existing portfolio on the face of severe pressure on cigarette sales volumes.

ITC Q4 shares - Q4 net profitGiven this scenario, it becomes critical for the cigarette major to focus on creating differentiated offers and developing innovative future-ready products. (Photo: Reuters)

India’s largest cigarette maker ITC is gearing up to develop “innovative future-ready products” along with strengthening its existing portfolio on the face of severe pressure on cigarette sales volumes.

The diversified conglomerate feels operating environment for the legal cigarette industry is likely to remain extremely challenging going ahead in view of the high levels of taxation and the new graphic health warnings on packs.

The company, however, remains confident of sustaining its leadership position in the legal cigarette industry by leveraging its “superior strategies, comprehensive product portfolio and world-class execution capabilities.”

“Company’s research and development initiatives continue to focus on strengthening existing product signatures, creating differentiated offers and developing innovative future-ready products. In this context, it is extremely gratifying to report that during the year the company was granted four international patents in respect of cigarettes – covering both product and packaging,” according to ITC’s latest annual report.

The company’s cigarette business remained subdued during the last financial year on the back of unprecedented pressure on the country’s legal cigarette industry due to the cumulative impact of steep increase in taxation and intense regulatory pressures.

Nomura, in its recent research note on ITC, said the company’s cigarette sales volumes declined over the past two years. Total volumes in the industry declined 8.2% year-on-year to 88 billion sticks in 2015 in India, the biggest y-o-y decline in the last 15 years.

Commenting on the company’s long-term outlook, Nomura said apart from previous consecutive excise duty increases and potential of greater excise duty hikes in the future, larger pictorial warnings on packs and a ban on the sale of loose cigarettes in certain states are further challenges that ITC is facing currently.

Given this scenario, it becomes critical for the cigarette major to focus on creating differentiated offers and developing innovative future-ready products.

In its latest annual report, ITC stated that Electronic Vaping Devices (EVD), also called electronic cigarette, are gaining increasing traction with consumers seeking alternative sources of nicotine. “In line with this trend, your company continues to engage in this category through its brand ‘EON’ which was launched in Hyderabad and Kolkata in the previous year. During the year, your company extended the brand to target markets and also augmented its product portfolio with the launch of a rechargeable variant – ‘EON Charge’ – in Bengaluru and Delhi,” it added.

In the Nicotine Gum category, the presence of the company’s brand, ‘Kwiknic’, was expanded with the introduction of the product in the chemists channel. A new variant – ‘Kwiknic Neo’ – was also launched in select markets.

The company said its management is committed to build reliable and responsive supply chains in cigarette segment. According to tax experts, cigarette manufacturers in India will have to ‘rework’ their supply chain when the GST is implemented, with the tax implications on their products undergoing a significant change under the new indirect tax regime.

Over the last four years, the incidence of Excise Duty and VAT on cigarettes, at a per unit level, has gone up cumulatively by 118% and 142% respectively thereby exerting severe pressure on legal industry volumes even as illegal trade grows unabated, ITC had said in a statement in May this year.

The company had to shut down its cigarette factories in the months of April and May on new graphic health warnings on packs. All major cigarettes manufactures had decided to shut down all their factories and stop manufacturing in April due to larger pictorial warnings on product packs covering 85% of the packaging space.

Later, ITC progressively commenced manufacture of cigarettes with 85% warning on cigarette packaging.

Currently, cigarette revenue accounts for about 48% of ITC’s total revenue. The company’s scrip on Thursday closed at Rs. 360.25, up 1.61% on BSE from the previous close

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