As cigarette business goes up in smoke, ITC pads itself with candy and curds

• For the first time, cigarette business contributed to less than half of ITC’s total sales.
  
• Since 1996, the non-cigarette business grew 21-fold.
  
• Tough regulations and tax are posing challenges to the company’s cigarette business.
  

It took over two decades but Indian Tobacco Company or ITC successfully transitioned from selling cigarettes to other businesses like fast moving consumer goods like wheat flour, ready-to-eat foods, shampoos and soaps amongst others.

For the first time in its century-long history, cigarette business contributed to less than half of its total sales. For the financial year that ended in March 2019, the cigarettes business accounted for 45.8%, as per an ET report.

ITC has since diversified into hotels, agriculture and FMCG. It now has successful brands under its kitty like Ashirwaad, the consumer wheat flour brand, Yippee which is a ready-to-eat snacks brand, Bingo chips and Vivel; apart from incense sticks. Moreover, ITC’s chain of hotels has 90 hotels in India, and is expanding internationally too.

Since 1996, the non-cigarette business grew 21-fold, and it is also pushing in money behind it. As much as 80% of capital deployed is flowing into other businesses.

Up in Smoke

The 109-year-old company which started as Imperial Tobacco Company while the country was still under British rule, shed its reliance exclusively on tobacco 60 years into business.

The company had predicted decades back that times will get tough for this business, and moved into other areas. And, its predictions have come true, affecting its flagship business.

Tough regulations and taxes in the industry are posing challenges to the company’s cigarette business with over 15 popular brands that include Gold Flake, Navy Cut, Players, Scissors and Capstan.

“A punitive and discriminatory taxation and regulatory regime, together with sharp increase in illegal trade in recent years, continue to pose significant operating challenges to the legal cigarette industry in the country,” ITC said in its annual report, released on June 13.

The taxation on cigarettes after the implementation of Goods and Services Tax, went up by 20%. Between 2011-12 and 2017-18, the tax on cigarettes has trebled. In fact, cigarettes are the most taxed tobacco item, as it is 55 times higher than other tobacco products, effectively turning smoking, unaffordable.