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ITC adds IT to its core focus

Oct 25, 1999

According to newspaper reports ITC Limited is embarking on a major infotech (IT) thrust. It has identified IT as a future growth area and plans to fortify its presence in the segment. ITC is the market leader in the Indian tobacco and cigarettes industry. It has also has a major presence in the hotels and packaging segment. It is one of the top foreign exchange earners for India (FY99 forex inflow: Rs 6.5 bn)

The company's main cash cow, the cigarettes and tobacco division is facing punitive taxation and a ban on public smoking. Though its cigarette sales are on the rise (2.8% growth in September 1999), it wants to cushion its future by spreading its risks. Therefore, it is investing in non-tobacco businesses like hotels and packaging. It recently announced a Rs 15 bn investment plan in the next five years to boost its hotels business. It also strengthened its packaging business by buying over Rollatainers.

The move to focus on IT is the second part of ITC's restructuring. Infotech companies are growing at a scorching pace. This scenario must have prompted ITC invest in IT. ITC already has a small presence in the segment in the form of ITC Infotech, an overseas subsidiary.

How far the company will succeed in achieving a major presence in the infotech segment is yet to be seen, but the going will be far from easy for this tobacco major. IT is a knowledge driven industry, which ITC has little experience in.

Market view:
Analysts have rated the stock as a 'BUY' on the back of its dominant position in the tobacco industry in India. Its commitment to its core areas and a strong distribution network has also supported the rating.

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