Pestle Analysis

PESTLE Analysis

Political
ITC faces stiff restrictions from the government on its tobacco business because of the nature of the product. Discriminatory central taxes are levied on the cigarettes. This has been worsened by the rise in VAT notwithstanding the fact that only 5.7% of all adults smoke cigarettes while almost 35% adults consume tobacco. The per- capita consumption of cigarettes in India is among the lowest in the world while tax per 1000 cigarettes as a percentage of per capita GDP is one ofthe highest. The tobacco industry has always been under government’s scanner. High taxation of cigarettes is one of the major challenges before ITC.
Economic
With the implementation of GST it is expected that it will bring some respite to the cigarette business.The Indian FMCG industry is estimated to be over Rs1,30,000 crores in size and accounts for 2.2% of theGDP of the country. The industry has tripled in sizeover the last 10 years and has grown at approximately17% CAGR in the last 5 years, driven by robustmacroeconomic conditions, rising income levels,increasing urbanization and favorable demographictrends. These drivers are expected to continue tofavorably impact the industry which is estimated tofurther triple in size in the next ten years to Rs 4,00,000crores by 2020 [Source: CII, FMCG Roadmap to 2020]. ITC hasbeen rapidly scaling-up its new FMCG businessescomprising Branded Packaged Foods, Personal CareProducts, Education and Stationery Products, LifestyleRetailing, Safety Matches and Incense Sticks (Agarbattis) with Segment Revenues growing at an impressive compound annual growth rate of 35% during the last5 years.In India, food inflation had spiraled to an all-time high of around 18% with commodities such as edible vegetable oils and dairy products witnessing close to 50% inflation owing to several global and India centric causes. The inflationary pressure on input costs was mitigated through a combination of smart sourcing, increased internal efficiencies and cost saving actions across the supply chain, thereby minimizing the cost burden on the consumer.The year saw unprecedented inflation in food pricesaround the world.During the financial year 2010/11, ITC and its subsidiaries earned Rs 3123 crores in foreign exchange. But the current economic scenario can have adverse effect on the exports of ITC.

Social
The percentage of consumption of cigarettes has reduced from 25% in 1970s to 15% currently. But, this forms a huge number in absolute terms. The current stressful work culture encourages smoking.Theincreasing population of women and low levels of per capita consumption of FMCG goods has opened up new avenues for ITC in FMCG sectors.Branded Packaged Foods businesscontinued to expand rapidly with sales recording animpressive growth of 25% over the previous year. ITC has launched many new products like Sunfeast Yippee and Aashirvaad atta which cater to the growing urban population.
Technology
ITC has a competitive edge over its competitors when it comes to technology and innovation. ITC ‘s inherent expertise in in the areas of contemporary product development,cutting-edge technology and robust go-to-marketprocesses, combined with thecompany’s deepconsumer insights saw the launch of several new andexciting offers, in line with the strategy of continuallymeeting emerging consumer needs. During the year, the new cigarette factory set up at Ranjangaon scaled up operations to full capacity,enabling the company to service the markets better. ITC has very diverse business portfolio. ITC Infotech services various sectors of the service industries and is CMMI level 3. ITC extensively uses Oracle eBiz and SAP solutions to improve its operations. This had huge impact on its paper industry.
The ‘Process Improvement Practices’initiative, using structured problem-solving methodologiessuch as ‘Lean’ and ‘Six Sigma’ have contributedto quality and productivity improvements and also has resultedin improvements in operating metrics and internalprocesses across all the factories. ITC keeps on upgrading primary and secondary technology platformsand running continuous improvement programmes in the areas of operating efficiencies and quality at allcigarette factories
Legal
ITC has, repeatedly drawnthe attention of policy-makers towards the followingimpacts of differential treatment of cigarettes:
(i). Sub-optimal taxation practices of States – likedifferential VAT rates – may well derail theimplementation of GST with a unitary standardrate of tax across the Indian common market.
(ii). Being highly taxed products, cigarettes arevulnerable to large scale smuggling.
(iii). The differential rate of VAT across the States onlyencourages unscrupulous tax arbitrage.
(iv). In line with international trends, the illegal tradein cigarettes results in funds flowing in to thecoffers of criminal syndicates with consequentialdetrimental impact on civil society by way ofheightened law and order problems.
India now ranks 6th globally in illicit cigarette trade with one of thehighest growth rates - 58% over the period 2004 – 2009. It is estimatedthat the illegal cigarette trade costs the Exchequer more thanRs 3000 crores per annum in lost revenues apart from offeringproducts of dubious and inferior quality to consumers.
For an industry like tobacco which is one of the core competency if ITC , will always face impediments from the law and order of the country.
Environment
ITC’s business is spread across the country where the spread is based on the availability of raw material and labour. West Bengal caters to much of its tobacco and paper business as these are labour intensive industries and labour is cheap there. In line with your Company’s commitment to buildingsustainable environmental capital, the business continues to invest in wind energy farms to increase usage of renewable sources of energy. Till date 14.7 Megawatt
(MW) of wind energy farms have been commissioned in Karnataka and 6.3 MW of wind energy farms are in the process of being implemented in Maharashtra.
Cigarette factories continue to recycle 100% of the solid waste generated. They also maintained the highest standards of Environment Health and Safety (EHS) and won recognition by way of numerous awards. The Munger
Factory was awarded the ‘PrashansaPatra’ Safety
Award under the National Safety Council of India Safety
Award Scheme – 2009 (Manufacturing Sector), Energy
Efficient Unit under the CII National Energy Award 2010,
Globe of Honour Award from the British Safety Council and Certificate of Appreciation at the CII Eastern Region
Energy Conservation Award. The Bengaluru factory won the Energy Efficient Unit under the CII National Energy
Award 2010, Globe of Honour Award from the British
Safety Council, Most Innovative Environment Project
Award and Most Useful Environment Project Award under the CII Environmental Best Practices Award 2011 and the Best Fuel Efficient Industrial Boiler Award from the
Karnataka State Safety Institute. The Kidderpore factory won the Water Efficient Unit Award at the CII National
Award for Excellence in Water Management 2011.