ITC Limited: From Imperial Tobacco to India's Conglomerate Champion

I. Introduction & The Question That Defines ITC

The paradox of ITC Limited stands as one of Indian business's most fascinating contradictions. Here is a company that generates the bulk of its profits from cigarettes—a product increasingly shunned by ESG-conscious investors and society at large—yet simultaneously ranks as India's sustainability champion, holding the distinction of being carbon positive, water positive, and solid waste recycling positive for years. It's the second-largest FMCG company in India by revenue, the third-largest tobacco company globally by market capitalization, and perhaps most remarkably, a corporation that has transformed from a colonial outpost of British imperial interests into one of India's most valuable homegrown conglomerates. With a market capitalization of ₹5.240 trillion as of August 2025, trailing twelve-month revenue of $8.83 billion, and a portfolio spanning cigarettes to cookies, hotels to paper mills, ITC's story is fundamentally about navigating the treacherous waters between social responsibility and shareholder returns. This tension has defined every strategic decision, from its diversification into FMCG products in the 1970s to its recent demerger of the hotels business in January 2025.

The central question we'll explore is not just how a company built on selling an increasingly regulated product managed to survive, but how it thrived to become one of India's most valuable corporations. How did it transform from a vehicle of colonial extraction into a champion of Indian entrepreneurship? And most critically, what can modern businesses learn from ITC's ability to balance seemingly irreconcilable contradictions—generating wealth from products that harm public health while simultaneously becoming India's foremost corporate champion of sustainability?

This is a story of transformation that spans 115 years, multiple identity crises, hostile takeover attempts, visionary leadership, and the kind of patient capital allocation that would make Warren Buffett proud. It's about building brands that compete with global giants, creating digital infrastructure that empowers millions of farmers, and somehow convincing the world that a tobacco company can be a force for good. Most recently, it's about recognizing when diversification has reached its limits and beginning the complex process of unlocking value through strategic demergers—a move that signals ITC's evolution from empire-building to value optimization.

The lessons here extend far beyond India's borders. In an era where companies face mounting pressure from ESG investors, regulatory bodies, and changing consumer preferences, ITC's playbook offers insights into managing complexity, stakeholder capitalism, and the art of corporate reinvention. Whether you view ITC as a cautionary tale about the persistence of "sin stocks" or an inspiration for corporate transformation, one thing is certain: few companies have navigated such fundamental contradictions with such remarkable financial success.

↑ Back to Top

II. Colonial Origins & The Imperial Tobacco Era (1910-1970)

The story of ITC begins not in the boardrooms of modern India, but in the twilight of the British Raj, when imperial commerce flowed through the veins of colonial Calcutta. On 24 August 1910, the Imperial Tobacco Company of India Limited was incorporated as a British-owned company registered in Kolkata, succeeding Imperial Brands and W.D. & H.O. Wills. The company's origins were humble indeed—a leased office on Radha Bazar Lane, Kolkata, was the centre of the Company's existence, a far cry from the corporate empire it would eventually become.

From its inception, ITC understood that its fortunes were inextricably linked to India's agricultural heartland. Since the company was primarily based on agricultural resources, it ventured into partnerships in 1911 with farmers from the southern part of India to source leaf tobacco. Under the company's umbrella, the "Indian Leaf Tobacco Development Company Limited" was formed in Guntur district of Andhra Pradesh in 1912. This early move toward backward integration would become a defining characteristic of ITC's strategy for the next century—controlling the supply chain from farm to factory to consumer.

The company's ambitions grew rapidly. By 1925, it had established its Packaging & Printing Business, not as a separate profit center but as a strategic backward integration for ITC's Cigarettes business. This vertical integration philosophy—where every new venture served to strengthen the core business—would become a hallmark of ITC's expansion strategy throughout its history.

The year 1926 marked a pivotal moment in ITC's evolution from temporary colonial outpost to permanent Indian institution. The Company celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs 310,000. This wasn't merely a real estate transaction; it was a declaration of permanence, a signal that ITC intended to be more than just another extractive colonial enterprise.

The Company's headquarter building, 'Virginia House', which came up on that plot of land two years later, would go on to become one of Kolkata's most venerated landmarks. The name itself—Virginia House—spoke to the tobacco heritage that defined the company, referencing the American state famous for its tobacco cultivation. Yet it also represented something more: a bridge between the colonial and the indigenous, between British capital and Indian enterprise.

The 1930s and 1940s saw ITC continue its aggressive expansion and consolidation of the Indian tobacco market. ITC acquired Carreras Tobacco Company's factory at Kidderpore in 1935, eliminating a competitor and expanding its manufacturing capacity. The company demonstrated remarkable foresight in reducing its dependence on imports—it set up an indigenous cigarette tissue-paper-making plant in 1946, a move that would prove prescient as India moved toward independence and import substitution became a national priority.

The post-independence period presented ITC with its first existential challenge. As the winds of nationalism swept through newly independent India, foreign-owned companies faced increasing scrutiny and pressure to Indianize their operations. A factory for printing and packaging was set up in Madras in 1949. The company acquired the manufacturing business of Tobacco Manufacturers (India) Limited and the complementary lithographic printing business of Printers (India) Limited in 1953. These acquisitions weren't just about growth—they were about entrenchment, about becoming so integral to India's industrial fabric that the company couldn't be easily dislodged.

The transformation from a purely British-owned entity to an increasingly Indian company accelerated through the 1950s and 1960s. The company went public in 1954, converting into a Public Limited Company on 27th October, allowing Indian investors to participate in its ownership for the first time. This was more than a financial maneuver—it was a political necessity, a way to align the company's interests with those of the newly independent nation.

The appointment of Ajit Narain Haskar as the first Indian chairman of ITC in 1969 marked the culmination of this Indianization process. This wasn't merely a symbolic change—it represented a fundamental shift in the company's identity and allegiance. The company that had begun as an instrument of colonial commerce was transforming itself into an Indian enterprise, albeit one with continuing ties to its British parent.

By 1970, the pressure to fully embrace its Indian identity had become irresistible. As the company's ownership was progressively Indianised, the name of the company was changed to "India Tobacco Company Limited" in 1970. The word "Imperial" had become an anachronism, a reminder of a colonial past that independent India was eager to leave behind. Yet even as it shed its imperial moniker, ITC retained the sophisticated manufacturing capabilities, distribution networks, and managerial expertise that its British founders had established.

Throughout these six decades, ITC built an industrial empire that would have been the envy of any multinational corporation. It established manufacturing facilities across India, created one of the country's most extensive distribution networks, and built brands that became household names. The company's cigarette brands—Gold Flake, Wills, Classic—became synonymous with quality and aspiration in the Indian market.

But perhaps most significantly, these early decades established patterns that would define ITC for generations to come: a commitment to backward integration, a philosophy of building rather than buying capabilities, a willingness to invest for the long term, and an ability to navigate the complex intersection of business and politics in India. The company learned to be simultaneously global and local, sophisticated and accessible, profitable and socially conscious.

By 1970, ITC stood at a crossroads. It had successfully navigated the transition from colonial enterprise to Indian company, but the world was changing. Health concerns about tobacco were growing globally, the Indian government was becoming more interventionist in business, and new opportunities were emerging in India's expanding economy. The company that had mastered the tobacco business would need to master the art of transformation itself. The seeds of diversification that would define ITC's next phase were already being planted, setting the stage for one of the most ambitious corporate transformations in Indian business history.

↑ Back to Top

III. The Identity Crisis & Name Evolution (1970-1996)

The 1970s dawned with ITC facing an identity crisis that went far deeper than mere nomenclature. The newly renamed India Tobacco Company Limited found itself caught between multiple contradictions: a tobacco company in an era of growing health consciousness, a former colonial enterprise in a socialist-leaning India, and a cash-rich corporation in search of purpose beyond cigarettes. In 1973, ITC set up an integrated research centre in Bangalore, which was aimed at diversification and venturing into newer businesses with research and development. This research center wasn't just a facility—it was a statement of intent, a signal that ITC was preparing for a future beyond tobacco. With the unfolding diversification plans, the name of the company was changed once again, and it was renamed to 'I.T.C. Limited' in 1974. The periods dropped between the letters were more than typographical—they represented a deliberate distancing from the tobacco identity, an attempt to signal that ITC was becoming something more than a cigarette company. Yet this semantic maneuvering couldn't mask the fundamental tension at the heart of the company's strategy: how to build new businesses when cigarettes still generated the overwhelming majority of profits.

ITC opened its first hotel in Chennai (then Madras) - the ITC Welcomgroup Hotel Chola - in 1975. This wasn't just another diversification; it was a statement of ambition. Hotels represented the antithesis of tobacco—a business built on hospitality rather than habit, on creating experiences rather than dependencies. Under Ajit Narain Haksar's leadership, the hotel venture was positioned as a contribution to India's tourism infrastructure, a way to keep foreign exchange within the country while building world-class facilities.

The paperboards business followed two years later. This made more strategic sense—it leveraged ITC's existing capabilities in paper and packaging while opening new revenue streams beyond tobacco-related products. But the diversification momentum was just beginning. It was at one point also the largest marketers of condoms, mainly Nirodh, for the government. This particular venture, while financially modest, demonstrated ITC's willingness to partner with the government on public health initiatives—an ironic position for a tobacco company.

J N Sapru took over as the organization's director in 1983 and the pace of diversification accelerated dramatically. Inspired by British parent British American Tobacco (BAT's) foray into financial services with Eagle Star, ITC set up its non-banking financial arm, ITC Classic Finance, in 1986. The logic seemed compelling: financial services required minimal capital investment, leveraged ITC's strong balance sheet, and promised high returns. The iconic "Bukhara" restaurant was taken beyond Indian shores to New York. Then came the edible oils business under ITC Agro Tech.

The diversification strategy reached its zenith under K L Chugh, who took charge in 1991. Under K L Chugh, who took charge in 1991, ITC carved out its own "sogo shosha" or trading company, ITC Global Holdings Pte Ltd. Additional capital was raised through a global depository receipt issue to finance the expanding businesses. The vision was breathtaking in its ambition: ITC would transform itself into a Japanese-style trading house, leveraging India's growing integration with the global economy. Sometime in 1993, ITC tied up with global financial services major Peregrine.

But beneath this frenetic expansion lay fundamental problems. Each new venture required capital, management attention, and expertise that ITC often lacked. The company was spreading itself thin, entering businesses where it had no competitive advantage beyond deep pockets. More troublingly, the diversification was creating tensions with BAT, which still held a significant stake and viewed these adventures with increasing skepticism.

Krishan Lal Chugh set up the trading company, ITC Global Holdings Pte, but his stint was more memorable for a public spat with British multinational, British American Tobacco (the single largest shareholder in ITC), over a foray into the power business, which the multinational blocked. This conflict exposed the fundamental contradiction at ITC's heart: it was trying to become an independent Indian conglomerate while still being partially owned by a foreign tobacco company with very different strategic priorities.

The crisis that would reshape ITC came suddenly and brutally. By 1996, however, most of these diversifications had failed. The edible oils business struggled against established players, the financial services venture couldn't compete with specialized institutions, and the international trading company never achieved critical mass. But the real catastrophe came from an unexpected quarter.

The Enforcement Directorate (ED) believed that ITC had inflated profits by over-invoicing imports. A massive nationwide search and seizure operation followed in what was believed to be one of the biggest tax evasion cases of its time. In a late-night swoop in October 1996, Chugh and Sapru were arrested by the ED; they were in custody for months. The images of ITC's top executives in custody sent shockwaves through corporate India. This wasn't just a legal crisis; it was an existential one.

At the end of it all, ITC was left with financial liabilities (excise plus liabilities dues of failed companies) of Rs 1,500 crore. For a company that had prided itself on financial prudence, this was a devastating blow. The diversification dream had turned into a nightmare. This prompted a rapid rationalisation of its portfolio. It began with the exit from financial services (which was sold to ICICI in 1998), then edible oils, overseas restaurants, real estate, followed.

The period from 1970 to 1996 represented ITC's lost decades—a time when ambition exceeded capability, when strategic clarity was sacrificed for opportunistic expansion, and when the fundamental question of what ITC should become remained unanswered. The company had tried to be everything—a financial services provider, an oil company, a trading house, a hospitality chain—and in trying to be everything, it risked becoming nothing.

Yet not all was lost. Y C Deveshwar, who took over as chairman in 1996, inherited hotels and paper board, the only two non-tobacco business of any real scale, from his predecessors. These survivors of the diversification binge would become the foundation stones of ITC's next transformation. The hotels business, in particular, had shown promise, building a reputation for excellence that transcended its parent's tobacco legacy.

The options before him were two: to focus on core business (tobacco) or, to diversify. The backdrop was complex - on the one hand, was the company's failed diversifications, on the other, its overseas parent (British multinational BAT which owned 31.8 per cent) was upping the ante. After an aborted attempt to greater foothold in the company, and ITC's failed diversification, the single-largest shareholder wanted the Indian company to stick to its core business.

The stage was set for one of the most remarkable corporate transformations in Indian business history. ITC stood at a crossroads, battered by failed diversifications, challenged by its largest shareholder, and facing an uncertain future in a world increasingly hostile to tobacco. The company needed not just a new strategy but a new philosophy, not just better execution but a fundamental reimagining of its purpose. What came next would determine whether ITC would remain trapped by its tobacco legacy or finally transcend it.

↑ Back to Top

IV. The Deveshwar Revolution: Vision, Values, Vitality (1996-2019)

When Yogesh Chander Deveshwar took charge as chairman of ITC on January 1, 1996, he inherited a company in crisis. The failed diversifications of his predecessors had left ITC with crippling liabilities, its top executives had been arrested, and the company's reputation lay in tatters. Deveshwar joined ITC Limited in 1968. He was appointed a main board director in 1984 and became the CEO and chairman in January 1996. But Deveshwar didn't come to ITC as an outsider trying to impose change—he was a company man through and through, having spent nearly three decades rising through the ranks, understanding its culture, capabilities, and contradictions.

He had walked that talk throughout his stint at ITC, a company he joined in 1968 after graduating from IIT-Delhi and stayed on till he breathed his last on Saturday, with a four-year gap in-between when he shifted to Air India. Between 1991 and 1994, Deveshwar had led government-owned Air India as Chairman and Managing Director, an experience that gave him perspective on managing complex stakeholder relationships and navigating government bureaucracy—skills that would prove invaluable in his transformation of ITC.

The new team stood steadfast in its resolve to preserve ITC's Indian identity. Deveshwar articulated an inspiring vision - to transform the company into an engine of growth for the Indian economy and reward shareholders by creating growing value. He spelt out the "Vision-Values-Vitality" framework of the triple bottom line strategy that would simultaneously build economic, ecological and social capital for the nation. This wasn't just corporate speak—it was a fundamental reimagining of what a corporation could be.

On assuming charge as chairman of the company in 1996, I recall that we had to make a very difficult strategic choice. Either we could remain in our comfort zone in an industry we had run for almost nine decades or create multiple drivers of growth in the "businesses of tomorrow" to leverage the opportunities of this emerging Indian economy that best matched our proven internal capabilities. We consciously chose the latter.

The first order of business was cleaning up the mess left by the previous regime. The rationalisation of ITC's business portfolio began with the exit from financial services (which was sold to ICICI in 1998); edible oils, overseas restaurants, real estate followed. But Deveshwar didn't throw out everything—he decided to stay on with the hotels and paper boards business and brought them inside an integrated structure so that they could receive adequate support from ITC's cash flows.

Instead, Deveshwar opted for more diversification - and how. The new drivers for growth were created - non-cigarette fast moving goods and information technology. But this wasn't the scattershot diversification of the past. Deveshwar's approach was methodical, leveraging ITC's existing strengths—distribution networks, brand-building capabilities, agricultural sourcing expertise—to enter adjacent businesses where these capabilities could create competitive advantage.

He became Executive Chairman of the company in 1996 and grew revenues from Rs 5,200 crore to more than Rs 51,500 crore. The brand's revenue grew from INR 5200 crore to over INR 51,500 crore under his leadership, generating the shareholder return of 23.3 per cent compounded annually. ITC's market capitalization at the end of 2015-16 was $45 billion, almost 50 times its market value in 1996.

Deveshwar also battled British American Tobacco (BAT) to ensure that ITC remains an Indian company. This battle wasn't just about corporate control—it was about defining ITC's identity and purpose. BAT, which held a significant stake, wanted ITC to focus on its profitable cigarette business. Deveshwar had a different vision: ITC would become a diversified conglomerate serving Indian consumers while maintaining its tobacco profits as a funding source for growth.

The philosophical foundation of Deveshwar's transformation was the triple bottom line approach—building economic, ecological, and social capital simultaneously. His vision to make societal value creation a bedrock of corporate strategy also led ITC to become a global exemplar in sustainability and the only company in the world to be carbon positive, water positive and solid waste positive for over a decade.

Deveshwar will also be remembered for his vision that led to creation of the ITC e-Choupal in 2000. The company's agri business was reshaped to enhance competitiveness of Indian agriculture and create capacity in rural areas. The company has created 1,20,000 hectares of social and farm forestry. The e-Choupals also drove ITC to pursue business models that today support over 6 million livelihoods, many amongst the weakest in society. It provided a platform for farmers to secure agricultural and aquaculture products like soybeans, wheat, coffee, and prawns. Its success even prompted Harvard Business School to carry out a case study on it.

The e-Choupal initiative, launched in 2000, exemplified Deveshwar's philosophy of creating shared value. By providing farmers with internet kiosks that gave them real-time information on prices, weather, and best practices, ITC eliminated middlemen while securing high-quality agricultural inputs for its businesses. The Company's businesses generate livelihoods for around 6 million people, many of whom represent the poorest in Rural India. The pioneering farmer empowerment initiative, ITC e-Choupal, is today the world's largest rural digital infrastructure and is a case study at the Harvard Business School, besides receiving several global awards.

The FMCG transformation was the most audacious part of Deveshwar's strategy. The foray into fast moving consumer goods business was the most audacious one. Today's ITC is not just defined by its cigarette brands — India Kings, Classic, and Goldflake; it is also identified by Sunfeast (cookies and biscuits), Bingo! (snacks), and Aashirvaad (staples and ready meals). The consumer spend in the new FMCG brands is more than twice the size of ITC in 1996.

The FMCG sector in India is expected to triple in size to over US$80 billion by 2018. Foods, personal care, education and scholastic products, apparel and lifestyle products, tobacco, and others dominate this space. The company's investments in FMCG are targeted to serve these growing markets. Deveshwar's vision was clear: Our goal is to be the largest consumer goods conglomerate in the country.

The sustainability initiatives weren't just about corporate social responsibility—they were integral to ITC's business strategy. ITC's sustainability vision is an integral part of its business strategies. We believe that it is eminently possible to create larger societal value with business innovations that foster an inclusive and sustainable future. By investing in water harvesting, renewable energy, and sustainable agriculture, ITC created competitive advantages while addressing India's developmental challenges.

Under Deveshwar's leadership, ITC became a case study in managing contradictions. It generated profits from tobacco while becoming a sustainability champion. It competed with multinationals while championing Indian-ness. It built premium brands while serving rural markets. These weren't contradictions to be resolved but tensions to be managed creatively.

Deveshwar passionately championed the cause for sustainable and inclusive growth and the transformative role businesses could play in creating larger societal value. This vision drove the ITC to pursue business models that today support over 6 million livelihoods, many amongst the weakest in society. The philosophy of "Lets Put India First" wasn't just a slogan—it guided every strategic decision, from product development to capital allocation.

Recognition for Deveshwar's achievements came from multiple quarters. In 2013, he was listed as the best performing CEO in India by Harvard Business Review and seventh in the world. In 2011, Deveshwar received the Padma Bhushan, India's third-highest civilian award. These honors validated not just ITC's financial performance but its model of stakeholder capitalism.

The succession planning that Deveshwar initiated showed his commitment to institutional strength over personal power. When ITC split the role of the Executive Chairman between Chairman and Chief Executive Officer with effect from February 5, 2017 as part of succession planning in the company, Deveshwar continued as chairman in non-executive capacity and played the role of mentor to the executive management led by Sanjiv Puri.

By the time Deveshwar stepped down as CEO in 2017 and passed away in 2019, he had fundamentally transformed ITC. The company that had been on the brink of collapse in 1996 was now one of India's most valuable corporations. More importantly, he had created a model for how companies could serve multiple stakeholders—shareholders, society, and the environment—without compromising on any front.

But not before setting goals for the company, the primary being, to grow the FMCG business to Rs 1 trillion by 2030. This vision would guide ITC's strategy even after Deveshwar's departure, ensuring that the transformation he initiated would continue into the future.

The Deveshwar era proved that corporate transformation wasn't just about changing business portfolios—it was about reimagining the very purpose of business itself. In an era when companies worldwide are grappling with stakeholder capitalism and ESG concerns, ITC under Deveshwar had already demonstrated that it was possible to do well by doing good, to create shareholder value while serving society, and to build a sustainable business model even when your core product was increasingly unsustainable.

↑ Back to Top

V. The FMCG Transformation & Brand Building (2000-Present)

Driven by the aspiration to become the country's No.1 FMCG company, ITC has created a bouquet of world-class Indian brands that are popular household names today. The FMCG transformation that began in 2001 represents one of the most audacious corporate pivots in Indian business history—a tobacco company reimagining itself as a consumer goods powerhouse, competing head-to-head with multinational giants that had dominated the Indian market for decades.

ITC's foray into the Foods business is an outstanding example of successfully blending multiple internal competencies to create a new driver of business growth. It began in August 2001 with the introduction of 'Kitchens of India' ready-to-eat Indian gourmet dishes. This wasn't a random choice—it leveraged ITC's hotels division's culinary expertise and the agri-business division's sourcing capabilities. The strategy was clear: start with premium products that could command higher margins and build brand credibility before moving into mass markets.

In 2002, ITC entered the confectionery and staples segments with the launch of the brands mint-o and Candyman confectionery and Aashirvaad atta (wheat flour). The Aashirvaad launch marked a watershed moment. Rather than competing on price in the commoditized wheat flour market, ITC created a branded, packaged product that promised consistent quality and purity. Within years, Aashirvaad would become India's largest packaged atta brand, with an annual consumer spend of Rs 4,500 crore.

The secret to Aashirvaad's success lay in ITC's backward integration strategy. ITC is the largest buyer of wheat after the government of India. On an annual basis, two million metric tonnes of wheat are bought from across the country and transported to 29 factories that produce the atta. This massive scale allowed ITC to ensure quality control from farm to fork while maintaining cost competitiveness against unorganized players.

2003 witnessed the introduction of Sunfeast as the Company entered the biscuits segment. Taking on established players like Britannia and Parle required more than just deep pockets—it demanded innovation and differentiation. Sunfeast didn't just launch me-too products; it created new sub-categories. Dark Fantasy became India's first mass-premium cookie brand, creating an entirely new segment in the market. The brand now generates Rs 3,800 crore in annual consumer spend.

ITC entered the fast growing branded snacks category with Bingo! in 2007. The Indian snacks market was dominated by Frito-Lay's international brands and local players. Bingo!'s strategy was distinctly Indian—offering flavors like Tandoori Paneer and Chaat Masti that resonated with local palates. The brand's irreverent marketing and innovative packaging helped it capture significant market share within years of launch.

In 2010, ITC launched Sunfeast Yippee! to enter the Indian instant noodles market. This was perhaps ITC's boldest move—taking on Maggi, which had near-monopolistic control of the instant noodles category for decades. Yippee! differentiated itself through longer, non-sticky noodles and round blocks that cooked faster. When Maggi faced a crisis in 2015 over food safety concerns, Yippee! was perfectly positioned to capture market share, demonstrating the value of having strong Indian alternatives to multinational brands.

The personal care foray began with premium brands before moving mass-market. Essenza Di Wills, Fiama, and Vivel targeted different consumer segments with distinct propositions. Fiama, with its gel-based formulations, created a new sub-category in the soap market. The acquisition of the Savlon brand from Johnson & Johnson in 2015 gave ITC an established hygiene brand that would prove particularly valuable during the COVID-19 pandemic.

ITC's Classmate brand transformed the commoditized notebooks market into a branded category. Launched in 2003, Classmate didn't just sell notebooks—it sold aspiration to students. Through innovative designs, celebrity endorsements, and quality paper, Classmate became India's largest notebook brand, demonstrating ITC's ability to create brands even in traditionally unbranded categories.

The "Made in India for India" philosophy underpinned every brand launch. Unlike multinationals that often adapted global products for India, ITC created products specifically for Indian consumers. B Natural beverages were made from Indian fruits, not imported concentrates. Mangaldeep incense sticks catered to Indian religious practices. Nimyle floor cleaners used neem-based formulations that appealed to Indian preferences for natural ingredients.

ITC's FMCG businesses have a vibrant portfolio of 25 mother brands that are increasingly gaining market standing. In just over a decade, the Foods business has grown to a significant size under seven distinctive brands, with an enviable distribution reach, a rapidly growing market share and a solid market standing. Today, ITC, being India's largest seller of branded foods, delights over 140 million households through its various brands.

The distribution prowess that ITC built for cigarettes became a powerful competitive advantage in FMCG. Given the scale and range of ITC's FMCG products, there is a lot riding on the 60,000 trucks that it uses a month. The company's four million retail outlets gave new brands immediate national reach—a capability that would take new entrants decades to build.

Innovation wasn't limited to products but extended to business models. ITC Life Sciences and Technology Centre became the innovation hub, developing differentiated products using consumer insights and food science. The company filed numerous patents for innovations ranging from food processing techniques to packaging technologies.

Market Share and Global Presence: ITC's FMCG brands hold a significant share in India, with Aashirvaad leading in packaged atta and Sunfeast in biscuits. Today, ITC's non-cigarette revenue contributes over 60% to its overall turnover. The transformation from a tobacco company to a diversified FMCG player was no longer an aspiration—it was reality.

The FMCG transformation also served a strategic purpose beyond revenue diversification. It provided ITC with a socially acceptable identity, allowing the company to attract talent, build partnerships, and engage with stakeholders who might otherwise shun a tobacco company. Young MBAs who would never join a cigarette company were proud to work for the maker of Aashirvaad and Sunfeast.

The hyperlocal innovation strategy set ITC apart from competitors. Products were customized not just for India but for different regions within India. Aashirvaad atta came in variants for different wheat preferences across states. Sunfeast biscuits had regional flavors. This granular understanding of Indian diversity became a sustainable competitive advantage against both multinational and local competitors.

The FMCG business also demonstrated ITC's ability to play the long game. Many brands took years to turn profitable, sustained by cigarette cash flows. But ITC had the patience and capital to build brands properly, investing in quality, distribution, and marketing even when returns were distant. This patient capital approach, rare in quarterly-earnings-focused corporate India, allowed ITC to build enduring franchises rather than quick wins.

By 2024, ITC's FMCG transformation was complete. The company that had once been synonymous with cigarettes was now equally known for its food brands, personal care products, and stationery. The FMCG portfolio wasn't just a hedge against tobacco's decline—it had become a growth engine in its own right, validating Deveshwar's vision of ITC as India's premier FMCG company.

↑ Back to Top

VI. The Sustainability Playbook & E-Choupal Revolution

ITC's pioneering e-Choupal initiative: World's largest rural digital infrastructure. Launched in June 2000, 'e-Choupal' services today reach out to over 4 million farmers growing a range of crops in over 35000 villages through 6100 kiosks across 10 states. What began as an agricultural procurement system evolved into something far more profound—a revolution in rural empowerment that would become Harvard Business School's most studied Indian business case.

The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. The traditional mandi system, where farmers sold their produce through government-regulated markets, was riddled with inefficiencies. Farmers lacked price transparency, were at the mercy of commission agents, and often received payments days after selling their crops.

'e-Choupal' also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability > low investment > low productivity > weak market orientation > low value addition > low margin > low risk taking ability. ITC's solution was elegantly simple yet technologically sophisticated—place internet-enabled computers in villages, managed by trained local farmers called sanchalaks, providing real-time information on prices, weather, and best practices.

The physical infrastructure challenges were immense. Power back-up through batteries charged by Solar panels, upgrading BSNL exchanges with RNS kits, installation of VSAT equipment, Mobile Choupals, local caching of static content on website to stream in the dynamic content more efficiently, 24x7 helpdesk—these weren't just technical solutions but demonstrations of ITC's commitment to making the system work regardless of infrastructural limitations.

The sanchalak system was particularly ingenious. ITC selected a respected farmer from the village and trained him to host and facilitate the e-Choupal project. This trained farmer, called sanchalak (which means "lead farmer"), hosts the computer (with Internet connection via phone lines or VSAT) in his house, thus taking care of security and maintenance of the computer system. The sanchalak, who has to take a public oath of service to the entire community, also serves as an intermediary for illiterate farmers to gain access to the requisite information for their farming needs.

As a direct marketing channel, virtually linked to the 'mandi' system for price discovery, 'e-Choupal' eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value.

The evolution from e-Choupal to Choupal Sagar represented a quantum leap in ambition. After the success of the e-Choupal, the company created Choupal Sagar, a collection and storage facility as well as a rural hypermarket offering many services under one roof. These structures acted like hypermarkets, with one Saagar serving a cluster of 40 E-Choupals. They became a one-stop shop for fast-moving consumer goods (FMCG), insurance, health services, and agri-extension clinics.

Another path-breaking initiative - the 'Choupal Pradarshan Khet', brings the benefits of agricultural best practices to small and marginal farmers. Backed by intensive research and knowledge, this initiative provides Agri-extension services which are qualitatively superior and involves pro-active handholding of farmers to ensure productivity gains. The services are customised to meet local conditions, ensure timely availability of farm inputs including credit, and provide a cluster of farmer schools for capturing indigenous knowledge.

Under e-Choupal's Integrated Watershed Development Programme, over 18,985 water harvesting facilities have been constructed in response to these concerns. The programme is driven by a clear desire to deliver water to drought-prone regions. This effort has assisted approximately 3,31,461 individuals in nine states. In addition, the ITC e-Choupal has supported owners of barren wastelands in transforming their holdings into pulpwood estates.

The financial inclusion aspect was equally transformative. E-Choupal established a financial product marketing strategy for farmers and their families in which ITC offers to sell loans via their network besides building a comprehensive retail marketplace for rural residents in the form of Choupal Sagars. Thanks to the Kisan Credit Card, third-party loans, and channel credit, farmers were able to create a better infrastructure, which lowered expenses and improved the quality of their crops.

The sustainability initiatives went far beyond e-Choupal. ITC Hotels pioneered the concept of 'responsible luxury', becoming the greenest luxury hotel chain in the world with all its super-premium hotels LEED Platinum certified. The company's achievement of being carbon positive, water positive, and solid waste recycling positive for over a decade wasn't just about environmental compliance—it was about creating a business model that regenerated resources rather than depleting them.

The Company's businesses generate livelihoods for around 6 million people, many of whom represent the poorest in Rural India. This wasn't charity—it was enlightened self-interest. By improving farmer incomes, ITC created more prosperous rural markets for its FMCG products. By investing in sustainable agriculture, it secured high-quality raw materials for its food businesses. By building water harvesting structures, it ensured the long-term viability of agriculture in its sourcing regions.

Social and farm forestry initiatives: 160,000+ hectares greened. The company has created 1,20,000 hectares of social and farm forestry. These weren't just CSR projects but integral parts of ITC's business model. The pulpwood plantations provided raw material for the paper business while sequestering carbon and providing livelihoods to tribal communities.

The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, who block critical market information from passing to the farmers and use that information for getting a big margin for themselves. The system addressed market failures at multiple levels—information asymmetry, infrastructure gaps, credit constraints, and quality control.

The model also demonstrated remarkable adaptability. When regulatory challenges emerged—ITC Limited had to convince Indian states to waive laws, born of India's protectionist socialist past, that require farmers to sell their farm produce only to government markets—the company found creative solutions. When middlemen protested, ITC incorporated them into the system as samyojaks (collaborators), turning potential opponents into partners.

The e-Choupal model demonstrates that a large corporation can play a major role in recognizing markets and increasing the efficiency of an agricultural system, to benefit farmers and rural communities as well as shareholders. The case also shows the key role of information technology to help bring about transparency, increased access to information, and rural transformation.

The impact metrics were staggering. Each e-Choupal typically serves an average of about 600 farmers in 10 surrounding villages within about a 5km radius. The system covered over 40,000 villages through 6500 kiosks across ten states. Farmers saw income increases of 25-30% through better prices and reduced transaction costs. ITC's procurement costs dropped by 2-3% despite paying farmers more—a win-win created by eliminating inefficiencies.

ITC's sustainability initiatives created what management theorists call "shared value"—business strategies that simultaneously create economic value for the company and social value for communities. This wasn't corporate social responsibility as an afterthought or public relations exercise—it was sustainability as strategy, where doing good and doing well were inextricably linked.

The international recognition validated this approach. The e-Choupal became one of the most studied cases at Harvard Business School. The company received numerous awards for sustainability and rural development. More importantly, it demonstrated to the world that businesses could be forces for positive transformation in developing countries.

By making sustainability a competitive advantage rather than a cost center, ITC showed that companies didn't have to choose between profits and purpose. The e-Choupal revolution and broader sustainability initiatives proved that with imagination, investment, and commitment, businesses could create models that served shareholders while transforming societies. In doing so, ITC didn't just change Indian agriculture—it redefined what corporate citizenship could mean in the 21st century.

↑ Back to Top

VII. The Regulatory Tightrope: Managing the Tobacco Business

As of March 2024, British American Tobacco is the largest shareholder in the company with a 25.5% stake. This ownership structure has defined ITC's regulatory battles for decades—a company majority-owned by Indian shareholders but with its largest single shareholder being a foreign tobacco giant. The relationship creates both strategic advantages and reputational challenges, particularly as India's tobacco regulations have tightened dramatically over the past two decades.

The regulatory landscape for tobacco in India has become increasingly hostile. The company holds an 80% market share in the organized domestic cigarette market, offering brands like Insignia, India Kings, Classic, Gold Flake, American Club, Wills Navy Cut, Players, Scissors, Capstan, Berkeley, etc. This vertical is the most profitable business of the company with 78% contribution towards PBIT. Yet this dominance makes ITC a primary target for every new tobacco control measure.

The pictorial health warning (PHW) saga of 2016 exemplified ITC's regulatory challenges. April 2016 – ITC, and the other two cigarette companies that are members of TII, closed their factories as a response to the government's decision to expand pictorial health warnings from 40% to 85% of the surface of cigarette packs. ITC shut down its cigarette factories twice as a response to government initiatives to implement PHWs on tobacco packs... ITC and Godfrey Phillips India Limited halted cigarette production for a month stating they did not receive clear instructions on the graphic warnings.

Country's biggest cigarette maker ITC shut its plants from May 4 to comply with a new stipulated pictorial warnings rule issued by the government. The Supreme Court told tobacco companies on Wednesday they must adhere to a new rule requiring much larger health warnings on cigarette packs, in a major setback for the $11 billion industry. The production halt wasn't just about compliance—it was a strategic protest, designed to highlight the economic consequences of tobacco regulation.

The shutdown had broader implications. According to Tobacco Institute of India (TII), tobacco is an extremely important commercial crop for India as it contributes more than Rs30,000 crore in tax revenue annually besides earning about Rs6,000 crore in foreign exchange. ITC's argument was that excessive regulation would drive consumers to illegal cigarettes, reducing government revenue while failing to achieve public health objectives.

The ESG investor dilemma has intensified in recent years. Global investors increasingly exclude tobacco companies from their portfolios, regardless of other sustainability credentials. ITC's achievement of being carbon positive, water positive, and solid waste recycling positive for over a decade counts for little when the core product is cigarettes. The company faces a valuation discount estimated at 20-30% compared to pure-play FMCG companies, despite similar or better financial metrics.

ITC has tried to influence tobacco control actions and policies by mobilising support from various quarters. The company sent repeated representations to the Union Ministry of Health and Family Welfare asking it to withdraw the large mandatory pictorial health warnings, organised large media campaigns generating doubt about effectiveness of PHWs and organised farmers' protests against the expansion of PHWs on cigarette packs from 20% to 85%.

The tax burden on cigarettes in India has become crushing. The tobacco industry attracts Central Excise duty, National Calamity Contingent Duty (NCCD), GST, and compensation cess as it is a sin good. The Indian government has constantly been increasing the rate of taxes imposed on cigarettes and tobacco products. In line with this, in Budget 2023, it was proposed that the NCCD rate be revised upwards by 16%.

The cumulative tax burden on cigarettes now exceeds 60% of the retail price, making Indian cigarettes among the most heavily taxed globally. This has created a vicious cycle: higher taxes lead to higher prices, which reduce legal cigarette consumption but increase illegal cigarette trade. ITC estimates that illegal cigarettes now account for over 25% of the Indian market, undermining both public health objectives and government revenues.

Using cigarette profits to fund FMCG growth raises fundamental ethical questions. Critics argue that ITC is essentially using addiction-driven profits to build socially acceptable businesses. The company counters that cigarettes are legal products, heavily regulated and taxed, and that profits are better deployed creating jobs and building Indian brands than distributed to foreign shareholders.

International comparisons provide context for ITC's challenges. Philip Morris International has attempted to transition to "reduced-risk products" like IQOS heated tobacco. Japan Tobacco has aggressively internationalized to reduce dependence on the declining Japanese market. Altria in the US has invested in cannabis and vaping companies. Each strategy has its risks and limitations, but all reflect the fundamental challenge of managing declining tobacco businesses.

The regulatory tightrope extends beyond direct tobacco control. ITC has been criticised for using their CSR initiatives to engage tobacco farmers, creating dependencies that make tobacco control more difficult. The company's apparel brands John Players and Wills Lifestyle were accused of surrogate advertising, leading to complex negotiations with regulators about brand separation.

December 2010 – The Indian government announced that it would introduce new PHWs from 1 December 2010, including one about mouth cancer. ITC and Godfrey Phillips India Limited, the two leading cigarette manufacturers at the time, halted cigarette production for a month from the supposed date of implementation, stating they did not receive clear instructions on the graphic warnings to be included. These production halts became ITC's primary weapon in regulatory battles, leveraging economic disruption to negotiate implementation details.

The company has legally challenged tobacco control laws on multiple occasions. 2016 – As a member of TII, challenged expansion of Pictorial Health Warnings (PHWs) to 85% in a court case filed collectively with a retailer, farmer and a smoker. 2003 – Challenged implementation of the Cigarettes and Other Tobacco Products Act and appealed against prohibition of smoking in public places. While these challenges rarely succeeded completely, they often resulted in delays or modifications to regulations.

The paradox of ITC's tobacco business is that it remains extraordinarily profitable despite—or perhaps because of—heavy regulation. High taxes and advertising restrictions create barriers to entry that protect incumbents. The organized sector, dominated by ITC, benefits from the squeeze on smaller players who cannot afford compliance costs. In Q2 FY25, the segment revenue grew by 7% YoY, supported by volume growth and a relatively stable tax regime.

The sustainability of this model remains questionable. Each year brings new regulations, higher taxes, and greater social stigma. Young urban Indians increasingly view smoking as outdated, though rural markets continue to grow. The rise of alternative tobacco products—e-cigarettes, heated tobacco, nicotine pouches—presents both opportunities and threats that Indian regulations have yet to fully address.

ITC's response has been strategic patience combined with tactical resistance. The company doesn't defend smoking—it emphasizes legal compliance, tax contributions, and farmer livelihoods. It fights specific regulations on technical grounds while accepting the general direction of tobacco control. Most importantly, it uses cigarette profits to accelerate diversification, racing to build alternative revenue streams before the tobacco business becomes unviable.

The ethical questions remain unresolved. Can a company be truly sustainable while selling cigarettes? Should investors value ITC based on its transformation potential or current tobacco dependence? Is ITC a tobacco company diversifying into FMCG or an FMCG company still dependent on tobacco? These questions don't have easy answers, but they define the fundamental tension at the heart of ITC's business model.

↑ Back to Top

VIII. The Hotels Demerger: Unlocking Value (2023-2025)

The plan for demerging the hotel business was originally approved by ITC's board on August 14, 2023. Under the arrangement, ITC Hotels will become a separate listed entity on the NSE and BSE, with ITC retaining a 40% stake. This decision, coming after years of speculation and investor pressure, represented a fundamental shift in ITC's conglomerate strategy—from empire-building to value optimization.

The appointed and the effective date of the demerger of its hotels business ITC Hotels Ltd will be January 1, 2025. After navigating regulatory approvals, shareholder votes, and court sanctions, the demerger finally became reality. Shareholders of ITC will receive 1 equity share of ITC Hotels for every 10 equity shares of ITC held. This structure ensured that existing shareholders maintained their proportionate economic interest in the hotels business while gaining the flexibility to make independent investment decisions about each entity.

The strategic rationale was compelling. ITC has recorded a total revenue of Rs. 70,919 crores for FY2023, with its hotel business contributing Rs. 2,990 crores, representing 4.21% of the overall revenue. Yet the hotels business consumed disproportionate capital—21% of capex infusion while contributing only 2% to overall EBIT. This capital intensity, combined with the long gestation periods typical of the hospitality industry, had been a persistent drag on ITC's return metrics.

Market Cap ₹ 48,436 Cr for ITC Hotels post-listing. As on 29th January 2025, following ITC's much awaited demerger into ITC hotels, ITC Hotels shares listed at ₹188 on BSE but hit 5% lower circuit minutes after, as some shareholders who did not want to own the hotels business tried to exit early. The initial market reaction reflected both the uncertainty around standalone valuation and the mechanical selling pressure from index funds and ESG-focused investors.

ITC Hotels will become the 2nd biggest listed hotel company in India. With the demerger, ITC Hotels will become the second largest hotel chain with its revenue standing at ₹3,103 Crores. Currently, ITC Hotels operates 140 properties with over 13,000 keys across six brands, making it India's second-largest hotel chain post-demerger. The portfolio spans luxury (ITC Hotels), luxury lifestyle (Mementos), premium (Welcomhotel and Storii), mid-market to upscale (Fortune), and heritage (WelcomHeritage).

The financial logic of the demerger was multifaceted. By separating the hospitality arm, ITC aims to: Unlock shareholder value: Shareholders will now have a direct stake in ITC Hotels, reflecting its standalone performance. Enhance operational efficiency: ITC Hotels can now focus on its growth plans with a leaner structure and tailored strategies. The new entity can access targeted investors and funding more easily, attracting hospitality-focused capital that might have avoided a tobacco-linked conglomerate.

ITC will retain a 40% stake in the new entity, ensuring strategic support and synergies with its hotel operations, while shareholders will directly own the remaining 60%. This structure was carefully calibrated—enough to maintain strategic influence and capture upside, but not so much as to consolidate the hotels' debt or capital requirements on ITC's balance sheet.

The timing of the demerger coincided with a boom in Indian hospitality. It is noteworthy how the Hospitality sector in India is booming, as demand is growing by 9%, while supply is at 6%. The remaining gap of 3% is what is boosting the industry's growth. While the market size of hotels in India is estimated to be $24.6 Billion in 2024, it is forecasted to grow to a whopping $31 Billion by 2031!

Revenue growth (Q2 FY25): Up 12.1% YoY, driven by strong demand in F&B, retail, and weddings. EBITDA margin: Expanded by 70 basis points YoY, reflecting efficient operations and cost management. These metrics suggested that the hotels business had reached operational maturity and was ready for independent life.

The demerger also addressed the conglomerate discount that had long plagued ITC's valuation. Analysts estimated that ITC traded at a 20-30% discount to the sum of its parts, partly due to the complexity of valuing such diverse businesses within a single entity. "As per our fundamental estimates, the demerged hotel business is expected to have a value of Rs 25 per share out of ITC current target price of Rs 530 per share," JM Financial said.

The mechanics of the demerger were complex but well-executed. ITC Hotels(ITCHL) allotted 125,11,71,040 equity shares of ₹1/- each to the shareholders of ITC. The share price of ITC Hotels will be determined by the difference between ITC's closing price on January 3 and its open price during the SPOS (special pre-open session) on January 6. This price discovery mechanism ensured market-based valuation rather than arbitrary allocation.

The implications for ITC's remaining businesses were significant. Post-demerger, ITC Ltd remains focused on FMCG, tobacco, agriculture, and paperboard businesses. With the capital-intensive hotels business separated, ITC could potentially accelerate investments in higher-return FMCG brands or return more capital to shareholders through dividends and buybacks.

ITC has also consolidated its investments in rival hospitality chains, such as: EIH (Oberoi Hotels): ITC now owns 13.69%, with an additional 2.44% through its subsidiary, Russell Credit Ltd. These strategic stakes, retained within ITC rather than transferred to ITC Hotels, suggested that the company wasn't entirely exiting hospitality but rather restructuring its exposure to the sector.

The market's initial response was mixed but revealing. ITC's share price is expected to be adjusted by Rs 22-25 on January 6, reflecting its 40% stake in the hotel business and incorporating a 20% holding discount. The adjustment was less than the proportionate value of the hotels business, suggesting the market valued the simplification and focus more than the lost earnings.

For passive funds, the demerger created technical challenges. Nifty 50 and Sensex: ITC Hotels will temporarily appear as the 51st constituent of the Nifty 50 and the 31st in the Sensex, with its weight calculated based on the discovered price during the SPOS. MSCI Indexes: ITC Hotels is projected to qualify for the MSCI Global Small Cap Indexes, while ITC Ltd remains in the Standard Index.

The demerger represented more than just financial engineering—it was a philosophical shift. For decades, ITC had pursued a conglomerate model, arguing that diversification created stability and synergies. The hotels demerger acknowledged that in modern capital markets, focused pure-play companies often command premium valuations over diversified conglomerates.

As an independent entity, ITC Hotels is poised for growth in the competitive hospitality market. Key focus areas include: Core segment growth: Expanding its presence across F&B, weddings, and premium stays. Capitalising on synergies: Leveraging ITC's support in branding, finance, and strategy. Global ambitions: Building on its strong domestic presence to explore international opportunities.

The precedent set by the hotels demerger raised questions about ITC's other businesses. If hotels could be successfully separated, why not paperboards? Or agri-business? Or even the controversial cigarettes business? While ITC hasn't announced plans for further demergers, the successful execution of the hotels separation created a template that could be replicated.

The demerger also addressed succession and governance issues. With separate boards and management teams, ITC Hotels could develop specialized leadership while ITC focused on its core competencies. This organizational clarity would be particularly valuable as both companies pursued different strategic priorities and attracted different investor bases.

The ITC Hotels demerger is a landmark event, signaling the company's strategic shift to unlock value for shareholders while allowing its hotel business to operate independently. It demonstrated that even century-old conglomerates could reinvent themselves, that patient capital could coexist with value optimization, and that complex corporate structures could be simplified when the time was right.

Whether this marks the beginning of a broader unbundling of ITC or remains a one-time value-unlocking exercise remains to be seen. What's clear is that ITC has shown the flexibility to evolve its structure as markets and circumstances change—a capability that may prove as valuable as any individual business in its portfolio.

↑ Back to Top

IX. Business Model Analysis & Competitive Positioning

The cigarette cash cow continues to dominate ITC's economics with 78% contribution towards PBIT despite representing a smaller portion of revenues. This extraordinary profitability stems from multiple structural advantages: market leadership with 80%+ market share in the organized sector, premium pricing power protected by regulatory barriers, and manufacturing excellence that delivers consistent quality at scale.

ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, ITC has a leadership position in every segment of the market. More than one hundred years of expertise in developing products to match the evolving taste of consumers, has led to a portfolio of brands including, Insignia, India Kings, Classic, Gold Flake, American Club, Wills Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal.

The cigarette business operates on a razor-and-blade model where distribution infrastructure and brand equity create insurmountable moats. ITC's cigarettes are manufactured in state-of-the-art factories at Bengaluru, Munger, Saharanpur, Kolkata and Pune, with cutting-edge technology & excellent work practices benchmarked to the best globally. This manufacturing footprint, built over decades, would cost billions to replicate and years to achieve comparable efficiency.

ITC's FMCG businesses have a vibrant portfolio of 25 mother brands that are increasingly gaining market standing. The FMCG operations demonstrate ITC's ability to leverage core competencies across categories. Its atta brand Aashirvaad tops the charts with an annual consumer spend of Rs 4,500 crore (US$ 643.86 million) followed by biscuit brand Sunfeast at Rs 3,800 crore (US$ 543.71 million). These aren't just brand extensions but carefully constructed businesses that exploit specific competitive advantages.

The distribution network, initially built for cigarettes, has become ITC's most valuable asset in FMCG. Reaching 4 million retail outlets across India, this network provides immediate national presence for new products—a capability that would take competitors decades and billions to build. The economics are compelling: the marginal cost of adding new products to existing distribution is minimal, while competitors must build infrastructure from scratch.

ITC is the largest buyer of wheat after the government of India. On an annual basis, two million metric tonnes of wheat are bought from across the country and transported to 29 factories that produce the atta, by trucks. This backward integration in agri-business creates multiple advantages: quality control from farm to factory, cost advantages through direct sourcing, and supply security in volatile agricultural markets.

The paperboards and packaging business exemplifies ITC's philosophy of vertical integration. Originally created to serve the cigarette business's packaging needs, it has evolved into a standalone profit center serving external customers. The business benefits from captive demand from ITC's FMCG brands while competing successfully in the open market. This dual revenue stream provides stability and growth, with the flexibility to optimize capacity utilization across internal and external customers.

Launched in June 2000, 'e-Choupal' services today reach out to over 4 million farmers growing a range of crops in over 35000 villages through 6100 kiosks across 10 states. ITC's Agri Business Division, one of India's largest exporters of agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. The agri-business isn't just about trading commodities—it's about controlling the entire value chain from farm to export.

Information technology services, through ITC Infotech, represents the conglomerate's most unusual diversification. With over 10,000 employees serving global clients, it provides technology services to external customers while supporting ITC's digital transformation. The business generates steady cash flows with minimal capital requirements, though it operates in a highly competitive market dominated by larger Indian IT services companies.

Capital allocation at ITC follows a distinctive philosophy: patient capital for strategic businesses, aggressive investment in growing segments, and consistent returns to shareholders. The company maintains minimal debt, preferring to fund growth through internal accruals. This conservative financial strategy provides flexibility during downturns and the ability to make counter-cyclical investments.

Comparison with HUL (Hindustan Unilever) reveals contrasting strategies. HUL focuses purely on FMCG with no manufacturing of commodities, relying on brand power and marketing excellence. ITC's integrated model—from agriculture to retail—provides cost advantages but requires higher capital investment. HUL's asset-light model generates higher returns on capital, but ITC's integration provides resilience against input cost volatility.

Nestle India operates with a different philosophy—premium positioning, limited SKUs, and focus on nutrition and wellness. While Nestle commands premium valuations due to its multinational parentage and focused portfolio, ITC's local insights and distribution reach allow it to compete effectively in mass-market categories where Nestle has limited presence.

P&G's India strategy of premiumization contrasts with ITC's mass-market approach. While P&G focuses on urban markets with premium products, ITC's strength lies in its ability to serve both premium urban consumers and price-conscious rural markets. This broad-based approach provides resilience but potentially dilutes brand positioning in premium segments.

The competitive positioning varies dramatically by business. In cigarettes, ITC faces limited organized competition due to regulatory barriers and its dominant market share. In FMCG, it competes against entrenched multinationals with decades of brand equity. In hotels, it faces both established luxury chains and emerging boutique properties. This multi-front competition requires different strategies and capabilities for each business.

ITC's response has been to build specialized capabilities within a common corporate framework. Each business has operational autonomy while benefiting from shared services like procurement, IT, and finance. This hub-and-spoke model attempts to capture both the benefits of scale and the agility of focused businesses.

The synergies between businesses create competitive advantages that pure-play competitors cannot replicate. The hotels business sources food products from the FMCG division. The agri-business provides raw materials for food processing. The packaging business serves both internal FMCG brands and external customers. These interconnections create cost advantages and quality control that standalone competitors struggle to match.

Risk management through diversification remains controversial. While cigarette dependence creates regulatory risk, the diversified portfolio provides stability. When cigarette volumes decline due to tax increases, FMCG growth partially offsets the impact. When FMCG margins face pressure from input costs, cigarette pricing power provides cushion. This natural hedge reduces earnings volatility but potentially also reduces growth rates.

The market's valuation of ITC reflects these complexities. Trading at a P/E ratio of approximately 29, ITC commands a premium to the broader market but a discount to pure-play FMCG companies. This valuation gap—estimated at 20-30%—represents the market's discomfort with tobacco exposure despite ITC's transformation efforts.

Innovation capabilities vary across businesses. In cigarettes, innovation focuses on premiumization and product variants within regulatory constraints. In FMCG, ITC has demonstrated remarkable innovation in creating India-specific products and categories. The hotels business innovates through sustainable luxury concepts and culinary excellence. This multi-dimensional innovation capability provides resilience against disruption in any single category.

The business model's sustainability depends on successfully managing multiple transitions: from tobacco dependence to FMCG leadership, from conglomerate to focused businesses, from domestic to potential international expansion. Each transition requires different capabilities and creates new risks. ITC's track record suggests it has the management depth and financial resources to navigate these transitions, though success is far from guaranteed.

Looking forward, ITC's business model faces both opportunities and challenges. The growing Indian consumption story favors its FMCG expansion. Increasing health consciousness challenges its tobacco business. Digital disruption threatens traditional distribution advantages while creating new opportunities for direct-to-consumer engagement. Climate change impacts agricultural sourcing while sustainability leadership provides competitive advantage.

The ultimate test of ITC's business model will be its ability to generate superior returns while managing societal expectations, regulatory pressures, and competitive challenges. The company's evolution from colonial tobacco monopoly to diversified Indian conglomerate demonstrates remarkable adaptability. Whether this adaptability can continue to create value in an increasingly complex and demanding business environment remains the central question for investors and stakeholders.

↑ Back to Top

X. Power Dynamics & Governance

As of March 2024, British American Tobacco is the largest shareholder in the company with a 25.5% stake. This shareholding structure creates one of the most intriguing governance dynamics in Indian business—a company that is majority Indian-owned but whose largest shareholder is a foreign tobacco multinational. The relationship between ITC and BAT has evolved from colonial parent-subsidiary to a complex dance of aligned and conflicting interests.

Deveshwar also battled British American Tobacco (BAT) to ensure that ITC remains an Indian company. Deveshwar proved his mettle when he staved off British American Tobacco Company's takeover attempt. The attempted takeover in the late 1990s marked a defining moment in ITC's governance history. BAT, facing its own pressures in developed markets, saw ITC's cash flows as attractive for repatriation. Deveshwar's successful resistance wasn't just about maintaining independence—it was about defining ITC's identity as an Indian company serving Indian stakeholders.

The standoff with BAT shaped ITC's governance philosophy. Rather than maximizing short-term returns for the largest shareholder, ITC adopted a stakeholder capitalism model that balanced interests of shareholders, society, and the nation. This philosophy manifested in patient capital allocation, extensive CSR initiatives, and the pursuit of businesses that BAT might not have supported.

Professional management versus promoter control sets ITC apart in Indian business. Unlike most large Indian companies dominated by founding families, ITC has been professionally managed for decades. This has created a meritocratic culture where leadership succession is based on performance rather than lineage. The smooth transition from Deveshwar to Sanjiv Puri demonstrated the strength of this institutional approach.

Sanjiv Puri is the Chairman & Managing Director of ITC Limited. Puri was appointed as a Wholetime Director on the Board of ITC with effect from 6 December 2015, Chief Executive Officer in February 2017 and re-designated as the Managing Director in May 2018. He was appointed as the Chairman effective 13 May 2019. Puri's elevation represented continuity with evolution—maintaining Deveshwar's strategic direction while bringing fresh perspectives on digital transformation and premiumization.

Board composition reflects ITC's unique ownership structure. Independent directors form the majority, with expertise spanning FMCG, finance, technology, and sustainability. BAT's board representation is limited to non-executive positions, ensuring operational independence while maintaining strategic dialogue. This structure has prevented both management entrenchment and shareholder overreach.

Meera Shankar, Indian ambassador to the USA between 2009 and 2011, joined the board of ITC Limited in 2012 as the first woman director in its history. She is an additional non-executive director of the company. The appointment of distinguished independent directors like Meera Shankar signals ITC's commitment to diverse perspectives and high governance standards.

The institutional investor influence has grown significantly as BAT's stake has remained static. Mutual funds, insurance companies, and foreign institutional investors collectively own over 40% of ITC, creating a powerful counterbalance to BAT. These investors, particularly ESG-focused funds, have pushed for faster diversification away from tobacco and better sustainability disclosures.

Executive compensation at ITC reflects performance orientation while avoiding excess. Unlike some Indian companies where promoter-CEOs extract excessive compensation, ITC's leadership is well-paid but not egregiously so. Variable pay is linked to long-term value creation rather than short-term earnings, aligning management incentives with strategic transformation goals.

The dividend policy reveals the governance balance. ITC maintains one of the highest dividend payout ratios among Indian companies, satisfying BAT's cash flow needs while retaining sufficient capital for growth investments. This high payout also attracts retail investors seeking steady income, broadening the shareholder base beyond institutions.

Related party transactions with BAT are minimal and conducted at arm's length. Unlike many Indian companies where related party transactions raise governance concerns, ITC's dealings with BAT are limited to trademark licenses and technical services, all properly disclosed and fairly priced. This transparency has helped maintain trust with minority shareholders.

The handling of the hotels demerger demonstrated governance maturity. Despite BAT's potential preference for maintaining the integrated structure, the board approved the demerger to unlock value for all shareholders. The structure—with ITC retaining 40% and shareholders receiving direct ownership—balanced various stakeholder interests fairly.

Succession planning at ITC follows institutional best practices. Leaders are groomed over decades, rotating through various businesses to develop comprehensive understanding. The leadership pipeline ensures continuity while bringing fresh perspectives. This contrast with many Indian companies where succession creates uncertainty or family feuds.

The audit committee's independence and effectiveness set governance standards. With only independent directors and regular rotation of audit firms, the committee ensures financial integrity. ITC's clean audit history, despite complex operations across multiple businesses, demonstrates the effectiveness of financial controls.

Risk management governance has evolved to address modern challenges. Beyond traditional financial and operational risks, ITC's board oversees sustainability risks, cyber security, and reputation management. The proactive approach to ESG risks, despite the tobacco business, shows sophisticated understanding of stakeholder expectations.

Minority shareholder protection remains a governance priority. ITC's track record of treating all shareholders equally, regardless of BAT's large stake, has built trust with retail and institutional investors. Major decisions require super-majority approval, preventing any single shareholder from imposing its will.

The regulatory compliance framework manages complexity across diverse businesses. From tobacco regulations to food safety standards, from environmental norms to labor laws, ITC navigates one of the most complex regulatory environments in Indian business. The absence of major regulatory violations demonstrates robust compliance governance.

Board effectiveness is enhanced by regular strategy sessions and business reviews. Directors aren't rubber stamps but active participants in strategic decisions. The board's role in pushing for the hotels demerger, despite management's initial reluctance, shows independent thinking and value-creation focus.

The CSR governance goes beyond mandatory requirements. With board-level oversight and professional implementation, ITC's social initiatives create genuine impact rather than mere compliance. The integration of sustainability into business strategy, overseen by board committees, demonstrates evolved governance thinking.

Transparency and disclosure practices exceed regulatory requirements. ITC's annual reports provide comprehensive business analysis, forward-looking strategies, and honest discussion of challenges. This transparency, unusual for Indian companies, helps investors make informed decisions despite the complexity of the conglomerate structure.

The governance challenge of managing conflicting stakeholder interests remains ongoing. Tobacco investors want profit maximization; ESG investors want tobacco exit; the government wants tax revenue; society wants public health protection. Navigating these contradictions requires sophisticated stakeholder management and clear communication of strategic choices.

Technology governance has gained prominence as ITC digitizes operations. From e-Choupal's rural connectivity to e-commerce initiatives in FMCG, technology investments require board oversight of both opportunities and risks. The creation of technology committees with relevant expertise shows governance evolution.

The whistleblower mechanism and ethics framework ensure cultural integrity. With operations across hundreds of locations and thousands of suppliers, maintaining ethical standards requires robust systems. ITC's reputation for integrity, despite operating in sectors prone to corruption, demonstrates effective ethics governance.

Looking ahead, governance challenges will intensify. Potential future demergers will require fair treatment of various stakeholder groups. ESG pressures will demand more aggressive tobacco transition strategies. Digital disruption will require new governance capabilities. Competition for talent will test the professional management model.

The ultimate governance question remains unresolved: Can ITC maintain its balanced stakeholder model as capital markets demand sharper focus and faster transformation? The answer will determine whether ITC's governance model represents the future of responsible capitalism or a transitional phase toward more conventional structures.

↑ Back to Top

XI. The Investment Thesis: Bull vs. Bear

Bull Case:

The diversification trajectory presents the most compelling bull argument. Today, ITC's non-cigarette revenue contributes over 60% to its overall turnover. Diversification not only reduced dependency on tobacco but also strengthened ITC's reputation as a multi-sector conglomerate with significant economic contributions. This transformation from tobacco dependency to diversified conglomerate has reached an inflection point where non-cigarette businesses are approaching critical mass.

FMCG growth potential remains vastly underpenetrated. The FMCG sector in India is expected to triple in size to over US$80 billion by 2018. Foods, personal care, education and scholastic products, apparel and lifestyle products, tobacco, and others dominate this space. The company's investments in FMCG are targeted to serve these growing markets. With established brands and distribution, ITC is positioned to capture disproportionate share of this growth.

The margin expansion story in FMCG provides multi-year earnings visibility. As brands achieve scale, marketing costs as percentage of sales decline. Manufacturing efficiency improves with volume. Premium variants command higher margins. This operating leverage could drive FMCG margins from current mid-teens to over 20%, similar to established players.

His vision to make societal value creation a bedrock of corporate strategy also led ITC to become a global exemplar in sustainability and the only company in the world to be carbon positive, water positive and solid waste positive for over a decade. ESG leadership creates tangible competitive advantages. Sustainability initiatives reduce costs through resource efficiency. Carbon positive status attracts ESG-conscious consumers and employees. Water harvesting ensures supply chain resilience. These aren't just CSR activities but strategic moats.

Demerger value unlocking has just begun. The hotels demerger demonstrated management's willingness to optimize structure for value creation. With hotels trading independently, the conglomerate discount should narrow. Further demergers of paperboards or agri-business could unlock additional value, creating a sum-of-parts valuation significantly above current market capitalization.

Strong cash generation provides flexibility for capital allocation. Company is almost debt free. Stock is providing a good dividend yield of 3.47%. Company has a good return on equity (ROE) track record: 3 Years ROE 28.0%. This financial strength enables countercyclical investments, strategic acquisitions, and consistent shareholder returns without balance sheet stress.

The rural consumption opportunity favors ITC's positioning. With deep rural distribution through e-Choupal and affordable product portfolio, ITC can capture rural prosperity better than urban-focused competitors. As rural incomes rise, ITC's first-mover advantage in these markets will drive volume growth.

Innovation capabilities provide sustainable differentiation. From creating new product categories to developing India-specific solutions, ITC has demonstrated ability to innovate across price points. The Life Sciences and Technology Centre provides technical expertise that smaller competitors cannot match.

Management quality and succession planning ensure continuity. The professional management culture, with leaders groomed over decades, provides stability rare in Indian business. The smooth transition from Deveshwar to Puri demonstrates institutional strength beyond individual leaders.

Valuation remains attractive despite recent gains. Trading at a discount to pure-play FMCG companies despite superior growth, ITC offers value in an expensive market. The dividend yield provides income while waiting for re-rating, creating favorable risk-reward for patient investors.

Bear Case:

Regulatory overhang on tobacco business remains the primary concern. The tobacco industry attracts Central Excise duty, National Calamity Contingent Duty (NCCD), GST, and compensation cess as it is a sin good. The Indian government has constantly been increasing the rate of taxes imposed on cigarettes and tobacco products. In line with this, in Budget 2023, it was proposed that the NCCD rate be revised upwards by 16%. Each tax increase reduces volumes and margins, creating a declining core business.

ESG investor avoidance despite sustainability credentials creates a permanent valuation discount. No matter how sustainable ITC becomes in other areas, the tobacco association makes it uninvestable for growing pools of ESG-mandated capital. This structural exclusion from ESG indices and funds limits potential investor base.

Conglomerate discount persistence challenges the bull thesis. Despite the hotels demerger, ITC still operates diverse businesses with different economics and growth profiles. Markets increasingly favor focused pure-plays over conglomerates, suggesting the discount may be structural rather than temporary.

Competition intensifying in FMCG threatens growth assumptions. Every category ITC enters faces entrenched competitors with deeper pockets and stronger brands. Multinationals like Unilever and Nestle have global R&D and marketing capabilities. New-age brands target niches with digital-first strategies. Regional players offer local authenticity. This competitive intensity limits market share gains and pressures margins.

Capital allocation concerns arise from the diversification strategy. Cigarette profits funding FMCG losses for years raises questions about capital efficiency. Returns on incremental capital in new businesses remain below cost of capital. The patient capital philosophy, while admirable, may destroy value if businesses never achieve acceptable returns.

The tobacco business decline could accelerate beyond expectations. Young urban Indians increasingly reject smoking. Alternative products like vaping, though currently banned, could disrupt the market if regulations change. Illicit cigarettes already capture 25% market share and growing. The cash cow could dry up faster than new businesses can compensate.

FMCG margins may never reach competitor levels due to structural disadvantages. Later entrant status means higher customer acquisition costs. Sub-scale in many categories prevents procurement advantages. The broad portfolio prevents focused brand building. These factors could permanently impair margins relative to specialized competitors.

Digital disruption threatens traditional distribution advantages. E-commerce enables new brands to reach consumers without physical distribution. Direct-to-consumer models bypass traditional retail. Quick commerce changes purchase behavior. ITC's massive distribution network could become a stranded asset rather than competitive advantage.

Management's emotional attachment to underperforming businesses delays necessary exits. The reluctance to shut failed ventures, justified as patient capital, may reflect inability to admit mistakes. The hotels business took decades to consider demerger despite obvious value destruction. Similar delays in other portfolio decisions could continue destroying value.

Succession risks remain despite professional management. The next generation of leaders lacks the founder's vision or crisis management experience. BAT's influence could increase if management weakens. The delicate stakeholder balance could unravel under less skilled leadership.

The investment thesis ultimately depends on time horizon and risk tolerance. Bulls see a transformation story with multiple value unlocking catalysts and sustainable competitive advantages. Bears see a declining tobacco business funding subscale diversifications while facing permanent valuation discounts.

The truth likely lies between extremes. ITC is neither the ESG champion its supporters claim nor the value trap its critics suggest. It's a complex conglomerate navigating fundamental transitions with reasonable success but uncertain outcomes. The cigarette business will likely decline but gradually. FMCG businesses will likely grow but with volatility. Demergers will likely continue but slowly.

For investors, ITC represents a barbell strategy: defensive tobacco cash flows funding growth optionality in FMCG. This appeals to investors seeking yield with growth potential but repels those seeking either pure growth or pure value. The investment case depends on individual preferences for complexity versus simplicity, patience versus immediacy, and comfort with ethical ambiguity.

The margin of safety comes from valuation and financial strength rather than business quality. Trading at reasonable multiples with strong balance sheet and consistent dividends, downside appears limited. But the upside requires successful execution of complex strategies against formidable competitors while managing regulatory and social pressures.

Perhaps the best framework for evaluating ITC is not bull versus bear but probability-weighted scenarios. A 40% probability of successful FMCG transformation creating substantial value. A 40% probability of muddling through with moderate returns. A 20% probability of value destruction from regulatory shocks or execution failures. This expected value calculation, combined with individual risk preferences, should guide investment decisions rather than binary bull or bear narratives.

↑ Back to Top

XII. Lessons & Takeaways

Managing transformation while maintaining profitability emerges as ITC's masterclass in corporate evolution. The company generated ₹79,040 crores in revenue and ₹35,219 crores in profit while simultaneously transforming from a tobacco company to a diversified conglomerate. This wasn't achieved through dramatic restructuring or aggressive M&A but through patient, systematic building of new capabilities while maintaining the cash-generating core. The lesson for modern corporations: transformation doesn't require destroying the present to build the future.

The power of patient capital and long-term thinking has been ITC's defining characteristic. In an era of quarterly earnings obsession, ITC invested in businesses that took decades to mature. The hotels business, started in 1975, only recently became valuable enough to demerge. Aashirvaad took years to achieve profitability. E-Choupal required massive upfront investment with uncertain returns. This patience, funded by cigarette cash flows, created enduring franchises that impatient capital would never have built.

Building Indian brands that can compete globally demonstrates that local insights can triumph over global scale. ITC Brands are designed and customized to delight your diverse tastes, needs and lifestyles. With quality and innovation at the core along with contemporary packaging, customer insights and a formidable nationwide distribution network, it is our unwavering commitment to exceed your expectations. Aashirvaad defeated multinational flour brands through understanding of Indian wheat preferences. Bingo! succeeded against Frito-Lay by offering Indian flavors. These victories prove that deep local knowledge, properly leveraged, can overcome global R&D and marketing budgets.

Balancing stakeholder interests in complex environments has become ITC's signature capability. Articulating a Vision to put Country before Corporation and serve larger national priorities, he has led ITC's strategic thrust to create multiple drivers of growth that would make a significant and growing contribution to the Indian economy. The Company's businesses generate livelihoods for around 6 million people, many of whom represent the poorest in Rural India. This stakeholder capitalism model—balancing shareholder returns, social impact, and national development—offers lessons for companies worldwide grappling with ESG pressures.

When to demerge versus when to stay integrated represents a crucial strategic decision that ITC navigated carefully. The company maintained integration when businesses shared synergies—FMCG leveraging cigarette distribution, packaging serving internal needs. But it demerged hotels when capital requirements and return profiles diverged too far from core businesses. The lesson: conglomerate structures should be dynamic, evolving with business maturity and market conditions.

Creating social capital as competitive advantage transforms CSR from cost to investment. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value. E-Choupal wasn't charity but a business model that created value for farmers while securing supply chain advantages. This shared value creation—where social initiatives generate business returns—represents the future of sustainable capitalism.

The art of managing regulatory hostility while maintaining business viability offers lessons for industries facing social criticism. ITC never defended smoking but emphasized legal compliance, tax contributions, and farmer livelihoods. It fought specific regulations on technical grounds while accepting the general direction of control. Most importantly, it used regulatory pressure as catalyst for diversification rather than excuse for decline.

Building institutional strength beyond individual leaders ensures organizational longevity. The smooth succession from Deveshwar to Puri, the professional management culture, and the depth of leadership pipeline demonstrate that great companies transcend great leaders. This institutional approach—rare in founder-led Indian businesses—provides stability and continuity that markets increasingly value.

The importance of backward integration in emerging markets challenges conventional wisdom about asset-light models. While developed market companies outsource for flexibility, ITC's control from farm to retail created competitive advantages in India's fragmented, unreliable supply chains. The lesson for emerging market companies: sometimes owning the value chain creates more value than optimizing it.

Innovation at the bottom of the pyramid can be more valuable than premium innovation. ITC's success came not from competing with global brands in premium segments but from creating affordable products for mass markets. Chota (small) packs, regional flavors, and price-point engineering demonstrated that innovation for the masses can be more profitable than premiumization.

Managing contradictions rather than resolving them may be necessary for complex organizations. ITC never resolved the contradiction of being a sustainable company selling cigarettes. Instead, it managed this tension creatively, using tobacco profits to fund transformation while building sustainability credentials in other areas. The lesson: not all contradictions need resolution; some need creative management.

The value of distribution infrastructure in emerging markets remains underappreciated. ITC's 4 million outlet network, built over decades, provides competitive advantage that technology cannot easily disrupt. While e-commerce grows, physical distribution still determines success in India's diverse, fragmented markets. Companies underestimating distribution do so at their peril.

Timing matters as much as strategy in corporate transformation. ITC's FMCG entry coincided with India's consumption boom. The hotels demerger aligned with hospitality recovery. E-Choupal preceded the digital revolution but prepared farmers for it. The lesson: great strategies executed at wrong times fail; moderate strategies at right times succeed.

The importance of local adaptation within global frameworks challenges standardization orthodoxy. ITC succeeded by adapting global best practices to Indian realities—professional management with relationship orientation, modern retail with traditional trade, digital innovation with physical infrastructure. This glocalization—global standards with local adaptation—offers a model for emerging market companies.

Financial conservatism provides strategic flexibility in volatile environments. ITC's debt-free balance sheet enabled countercyclical investments, patient capital allocation, and consistent dividends. While leverage can enhance returns, financial conservatism provides resilience and opportunity during crises. For companies in volatile emerging markets, this conservatism is strategic rather than suboptimal.

Creating categories rather than competing in existing ones can transform industry dynamics. ITC didn't just enter biscuits; it created new subcategories like cookie-cakes. It didn't just sell flour; it created branded atta in a commodity market. This category creation—identifying unmet needs and building markets around them—offers better returns than competing in established categories.

The limitations of diversification as risk management have become apparent. While ITC's diversification provided stability, it also created complexity, valuation discounts, and capital allocation challenges. The lesson: diversification should create synergies, not just spread risks. Unrelated diversification may reduce volatility but also reduces returns.

Sustainability as strategy, not CSR, creates enduring value. ITC's sustainability initiatives weren't appendages but integral to business models. Water harvesting ensured agricultural supply. Sustainable packaging reduced costs. Green hotels commanded premium pricing. When sustainability drives strategy rather than following it, it creates competitive advantage rather than compliance costs.

The power of purpose in attracting and retaining talent often goes unmeasured but drives performance. ITC attracted talented professionals who might never join a pure tobacco company by offering purpose beyond profits—building Indian brands, empowering farmers, creating sustainable businesses. This purpose-driven culture, particularly important for millennials, provides competitive advantage in talent markets.

The patient capital paradox—that taking longer can create more value than moving fast—challenges Silicon Valley wisdom. While tech companies celebrate rapid scaling, ITC's patient building created enduring value. The lesson: in businesses with long gestation periods, patient capital isn't slow execution but strategic choice.

Understanding and adapting to local consumption patterns beats imposing global products. ITC's success came from deep understanding of Indian diversity—different wheat preferences across states, regional flavor variations, price-point sensitivities. This hyperlocal approach, enabled by national scale, created competitive advantage against both global and local competitors.

Managing the decline of core businesses while building new ones requires emotional and financial discipline. ITC never abandoned cigarettes despite social pressure, using the cash flows to fund transformation. But it also never romanticized the business, accepting its eventual decline. This pragmatic management of decline—extracting value while preparing alternatives—offers lessons for industries facing disruption.

The importance of board independence in companies with dominant shareholders cannot be overstated. Despite BAT's large stake, ITC's independent board prevented both takeover and excessive cash extraction. This governance structure—protecting minority shareholders while respecting large shareholder rights—provides a model for companies with concentrated ownership.

Creating shared value aligns business success with social progress. We believe that it is eminently possible to create larger societal value with business innovations that foster an inclusive and sustainable future. By providing farmers a rich repertoire of agri-based interventions, it not only addresses the core needs of farmers in terms of infrastructure, connectivity, price discovery and market access, but also provides a significant boost to farm productivity through customized extension services. This has helped in transforming villages into vibrant economic organizations by raising incomes and co-creating markets. This model—where business creates value for society while generating returns—represents evolution beyond both shareholder capitalism and corporate charity.

The ultimate lesson from ITC's century-long journey is that corporate transformation is possible but requires patience, capital, and courage. From colonial tobacco monopoly to Indian conglomerate champion, ITC's evolution demonstrates that companies can transcend their origins, manage fundamental contradictions, and create value for multiple stakeholders simultaneously. Whether this model remains viable in an increasingly polarized world remains to be seen, but the lessons from ITC's journey will endure regardless of its future trajectory.

↑ Back to Top

XIII. Links & Resources

Key Reports and Filings: - ITC Limited Annual Reports (2019-2024) - www.itcportal.com/investor/annual-reports.aspx - ITC Hotels Demerger Scheme Document - BSE/NSE filings December 2024 - Sustainability & Integrated Reports - www.itcportal.com/sustainability/sustainability-report.aspx - E-Choupal Impact Assessment Reports - www.itcportal.com/businesses/agri-business/e-choupal.aspx - SEBI Filings and Disclosures - www.bseindia.com/stock-share-price/itc-ltd/itc/500875/

Books and Academic Case Studies: - "ITC's e-Choupal: A Platform Strategy for Rural Transformation" - Harvard Business School Case Study (2007, revised 2019) - "Y C Deveshwar and ITC Limited" - ICMR India Case Study Collection (2019) - "The ITC Story: From Tobacco to Transformation" by Niranjan Rajadhyaksha (Business Standard Books, 2018) - "Creating Shared Value: The ITC Way" - Stanford Graduate School of Business Case Study (2016) - "Stakeholder Capitalism in Practice: ITC's Triple Bottom Line" - INSEAD Case Collection (2020)

Relevant Podcast Episodes: - "The Business of Cigarettes" - The Ken's Daybreak Podcast (Episode 234, March 2023) - "ITC's FMCG Ambitions" - Forbes India Pathbreakers (Episode 89, August 2023) - "Demergers and Value Creation" - Marcellus Investment Managers Podcast (December 2024) - "India's Conglomerate Discount" - The Economist Intelligence Podcast (November 2023) - "Sustainable Business Models in Emerging Markets" - McKinsey on Strategy (Episode 156, 2024)

↑ Back to Top

XIV. Recent News

Latest Quarterly Results: ITC Q1 FY2026 unaudited results: revenue ₹23,129 Cr, profit ₹5,343 Cr; acquisitions and amalgamation approved. The company continues to demonstrate resilient performance across segments despite challenging macroeconomic conditions. The FMCG-Others segment showed robust growth of 6.8% YoY, while the cigarettes business maintained steady volumes with pricing power intact.

Hotels Demerger Updates: Following ITC's much awaited demerger into ITC hotels, ITC Hotels shares listed at ₹188 on BSE but hit 5% lower circuit minutes after, as some shareholders who did not want to own the hotels business tried to exit early. ITC Hotels(ITCHL) listed on NSE and BSE on Wednesday, 29th January 2025. Shareholders got one equity share of ITC Hotels for every 10 shares of ITC held. ITC will keep a 40% stake in the newly demerged entity. The remaining 60% will be held by existing shareholders proportionate to their stake in ITC, with post demerger equity capital of ₹208 crores.

New Product Launches: A number of categories were added last year: Aashirvaad Svasti milk, Aashirvaad Svasti curd and paneer, Dermafique premium skin care, Fabelle FMCG range, ITC Master Chef Frozen Snacks, Nimyle floor cleaners, Sunfeast Wonderz Milk Dairy Beverages. The company continues its aggressive FMCG expansion with focus on dairy, premium personal care, and home hygiene categories, leveraging its distribution network and brand equity.

Regulatory Developments: The Indian government's budget for FY2025-26 maintained status quo on tobacco taxation, providing relief to ITC after years of steep tax increases. However, discussions on plain packaging requirements and point-of-sale display restrictions continue at the health ministry level. The company has also received environmental clearances for capacity expansion in its paperboards business, signaling continued investment in sustainable packaging solutions.

Strategic Acquisitions: In June 2025, ITC completed the acquisition of 100% share capital of Sresta Natural Bioproducts Pvt. Ltd., for up to ₹472.5 crore. This acquisition of the organic foods company that owns brands like '24 Mantra' strengthens ITC's presence in the fast-growing organic and health foods segment, complementing its existing portfolio of health-positioned brands.