ITC LTD.

AND COVID-19
PANDEMIC
Introduction to Operations Management

Submitted to: Prof. Chitresh Kumar

Submitted by: Sanjana Agarwal
Date: 10th June, 2020.
ID: 18020164

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 Table Of Contents

INTRODUCTION ............................................3

IMPACT ON ITC’S SUPPLY CHAIN AND

FINANCIALS ..................................................4

SUPPLY CHAIN FLOW CHART: ........................................... 5

FINANCIALS ......................................................................... 6

MEASURES TAKEN BY ITC .........................8

CONCLUSION ................................................9

REFERENCES .............................................10

ANNEXURE 1 ...............................................11

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 Introduction

The world was hit by the novel Coronavirus in the beginning of the year 2020 bringing
the world to a halt, especially huge organizations in different countries resulting in an
economy crash. India has been affected by this virus as well, it has affected more than
2.5 lakh citizens and causalities of more than 7 thousand have taken place. Since,
many people are confined to their homes and a strict lockdown was imposed on every
commercial activity, it was only possible for essential items to move around. This too
had to be done under strict cautions that had to be managed by firms that manufacture
essential goods. Many large companies have reported that their 4 th quarter of the
financial year had taken a plunge, resulting in losses, lay-offs and budget cuts for the
next financial year.
ITC has also been affected due to the lockdown measure and the global pandemic.
They’ve had supply chain disruptions and their profitability has also taken a hit. The
government has imposed rules to ensure safety of workers and cautionary standards
are to be maintained by essential product manufacturers. In this report, we will discuss
the challenges ITC has faced in terms of supply chain and its management and what
measures they have taken to tackle those challenges. They have also taken
sustainable measures as ITC’s one the main mission is to attain sustainability in all of
its businesses across the country. ITC is a diversified company and the expectation
out of all their businesses especially Cigarettes depends on how the government
responses as the country’s economy sinks, if the taxes on cigarettes further increases
the sales are likely to go down and adversely affect ITC’s main revenue and the
shareholders.

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 Impact on ITC’s Supply Chain and Financials
ITC currently is active in various industries like FMCG, paperboards and packaging,
hotel chains, Agri business and IT. Due to the coronavirus outbreak and the four
phases of lockdown imposed by the Government, there has been very little or no work
in some of its businesses. Manufacturing plants are either shut or only manufacture
essential products like food, beverages or lifestyle necessities. Since the lockdown
ITC has come out with several initiatives to ensure work and safety for its employees.
ITC has made changes in its supply chain to make sure that they are following
government imposed rules and regulations to ensure safety and hygiene of workers.
Their limited workforce continues working in factories at a 20-60% capacity utilization
and are only manufacturing essentials like Atta, noodles, biscuits, soaps, sanitizers
etc. with at most safety and indefinite hygiene standards. Factories that manufactured
Cigarettes were shut down as it was labelled as a non-essential item by the
government during the first and the second phase of the lockdown, from 25th March to
3rd May. The pandemic also affected consumer demand to shift from carbonated drink
to packaged juices which led to a disruption in the supply chain of juices. So, ITC has
partnered with Amway India to sell immunity boosters along with their products.
The distribution channels were also upgraded to meet hygiene standards and to
ensure that the products reached the stores on time due to the panic buying in the
beginning of the lockdown. ITC has sourced their distribution chains through partnered
collaborations with Dominos, Zomato and Swiggy delivery services. They help in
delivering essentials like Ashirwaad Atta and spices to the customers.
Since the outbreak, the healthcare workers and the government has advised to ensure
at most hygiene with the help of alcohol based sanitizers. This was an opportunity to
prevent extra losses and to cater rise in demand, ITC has ramped up production of
Savlon sanitizers. In order to do so, they changed the perfume production
manufacturing unit to sanitizer production unit in Himachal Pradesh, this facility
produces more than 1 lakh litres of Savlon Hand Sanitizers.
Many factories of ITC in Saharanpur, UP, Bihar as well as Patna have repurposed
themselves to do community work and have provided cooked meals to the needy and
migrant workers. These meals are also being provided by the ITC Hotel Chains to the
healthcare workers and doctors across India.

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 SUPPLY CHAIN FLOW CHART:

Delivers food Raw Materials

delicacies to Limited business, main stored – cost
maintain revenue revenue dips saving

Paperboards and
ITC Hotel Chains
Packaging

Impact on ITC’s
Business

Agri Business Supply Chain

Supply and Logistics Manufacturing

Sourcing Constraints and Delivery

Low Demand,
Quality Labour Shortage, Limited workers,
Deterioration, Paucity of Limited
Delayed Transportation Transportation
Procurement

FMCG – Essential Products Cigarette Business

Transportation Production interrupted,

Manufacturing
And Distributions Tax increases

Limited Sales decline, Revenue

Outsourced dips
Workforce, Less
Distribution
Capacity
Facilities
Utilization

Fig 1: This flow chart explains the adverse effects of the lockdown and coronavirus on
the supply chain and its disruptions in ITC. (made by the writer)

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According to some of their raw materials suppliers of their Paper business, ITC has
not been indulging or asking for materials from them. They have stored enough raw
materials for their paper business that the requirement for shipments of such raw
materials like pulp has been denied even after the unlocking phase of the government
imposed lockdowns. This is one way ITC has been cutting cost and protecting their
paper business. They have instead used these factories to deliver meals across
communities for the extra support to the state and central government. The Head of
ITC’s Agri Business says that the famers have asked to take preventive measures to
make sure to follow safety standards but also are expected to have an uninterrupted
agriculture. There have been constraints in providing raw materials or commodities
like wheat, paddy or oilseeds. Due to the lockdown, demand for raw materials have
declined, labour crisis has risen in the country and therefore it has resulted in a
disruption is transporting, distribution, inventory management facilities.
The hotel chains have started serving their food delicacies through food delivery
services like Swiggy by bringing the revenue back on track. The new partnerships with
Zomato, Swiggy, Dominos, Amway and acquisition of Sunrise has made it evident that
ITC will not be suffering losses due to the pandemic.

Financials:

ITC has taken initiatives to provide for financial benefits to its workers and also has
taken steps to support the government. For the benefit of the workers it has introduced
a contingency fund of Rs. 150 Crores. This fund will ensure protection and safety of
the most vulnerable or needy sections of the society. ITC has also donated Rs. 100
crores to the #PMCaresFund. Apart from this, ITC has also faced losses in its top
product profitability, that is, Cigarettes. Since the production of cigarettes were at halt
for more than a month, the sales was at an all-time low. This all impacted the revenue
streams from the tobacco business but it was not severe and they recovered from it
when the production resumed on 3rd May.
The hotel industry has faced losses due to the travelling restrictions. ITC has been
catering to the stranded travelers and have been providing to the medical staff. Sanjiv
Puri, the Chairman of ITC, in an interview said that they can only depend on the
economy and how it picks up later on.

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After May 3rd, ITC resumed production of its tobacco business and the share prices
surged 7.5% to Rs. 188.9. It was at a 52 week low during mid-march at Rs. 139.95
because of the halt in productions. ITC had also revised it dividend policy just before
the first phase of the lockdown, this helped prevent any further fall of its share price.
The results of this dividend policy were that it increased the payout rate to 80-85%
earnings for FY20 as compared to 56% for FY19. Even though currently ITC market
share prices are surging by 40%, it is projected to slump in the coming financial year.
Some analysts have projected a rise in profits and revenue for the FMCG industry
which can help in maintaining profits, since their Q3 Profits jumped 29% to Rs. 4142
Crore. ITC is a diversified company, hence, the shareholders can expect low returns
than compared to last year. Its competitors like HUL, Dabur who have their businesses
booming due to the rise in demand in FMCG in the pandemic have a firsthand
advantage.
Even though ITC has not come out with proper statements on the effect of their
financials, we can say that according to the past data they have built strong financial
base to fight this pandemic. Their market capitalization for 2018 deemed ITC has 4th
most valued company at 3.69 lakh-crore which is higher than compared to the current
scenario, due to the fall in market share price in end-March 2020, ITC saw a fall in
their market cap estimated at 1.78 lakh-crore. Currently, their market cap has had a
sharp rise to 2.42 lakh-crore due to the increase in share value. It is further estimated
that the returns in ITC’s non-cigarette business will be around 30% due to the new
acquisitions and partnerships. In Annexure 1, Fig 2 and 3 give us a rough estimation
of 2020’s result, it can be evaluated that since they achieved a 10% YoY growth in
2019 and 4% YoY growth in the standalone profit in Q3FY20. To device as estimation
for Q4FY20, we can say its contingency plans and market share prices have abled
them to not worry much about losses for the current year, also because some of their
prominent businesses came to a halt in the end financial period which prevents them
to attain immediate losses. The prediction of FY21 is still in ITC’s favor because their
profitable businesses and its contingency plans might not affect the profits made in
FY20. ITC’s stock market is very bullish according to the traders after they acquired
100% stake in Sunrise. By looking at their future plans like evaluating food trends and
partnering with Amway India – it can be analyzed that they have not attained significant
losses in the last quarter on FY20 (which is yet to be declared).

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 Measures taken by ITC

ITC has extensively invested in measure that could prevent further losses during the
pandemic. The initiatives they have taken to fight Covid-19 are listed below:
- By supporting the government by donating Rs. 100 crores in the
#PMCaresFund.
- By introducing a Rs. 150 Crore Contingency fund for its staff and migrant
workers
- Limited workforce in factories manufacturing only essential products like atta,
package foods, beverages, personal care.
- They have outsourced with Dominoes Delivery, Zomato and Swiggy services
for food deliveries to their consumers.
- Providing food and hygiene products to the vulnerable and needy society,
cooked meals to the migrant workers
- Working with their famers with their online network – ITC e-choupal 4.0
- Spreading awareness with campaigns by the ITC Savlon brand and to enhance
the importance of personal hygiene. To endorse creativity ITC Classmate brand
has kept the people engaged in several creative activities. Awareness camps
have been set up and around 18 villages have disinfected around the
Bhadrachalam factory.
- The Himachal Pradesh perfume factory has been turned into the Savlon
Sanitizer production unit to curb rising demand in the market.
- They are currently selling the Savlon Hand Sanitizer at 50 paise and launched
packaged lassi to expand their dairy business.
- Measures also include – Contingency Management teams available for
observations at all times, limited work staff, strict protocols for safety, hygiene
and social distancing norms. Safety precautions have been implemented, that
is, temperature checks, masks, gloves, staggered work timings and medical
staff availability all-round the clock.
- ITC’s IT business conducts businesses through video conferences due to the
work from home policy implemented during lockdown. More that 4 thousand
employees work from home to ensure safety and follow social distancing.

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 - Collaborated with NGOs like Child Rights and You (CRY) to provide specially
curated boxes to families in different villages under the domain “Ashirvaad Box
of Hope and Sunfeast Box of Happiness”
- To boost morale of all frontline workers a special video was also launched in
keeping in mind their tireless efforts to provide services amidst the pandemic.

Conclusion

In conclusion, we can say that ITC has followed all safety norm as to ensure a smooth
line of production. Since, it’s an age old company it has experienced and gone through
the most severe climatic or governmental problems, hence, we say that it was
prepared to face this pandemic with at most rigor. By providing for its workers, ITC has
proved to be one of the prestigious companies to work for. On 24th May 2020, ITC
acquired 100% stake in Sunrise Food and analyst say it could make ITC a growth
stock again. The lockdown has not feared ITC of losses or costs but has promised to
introduce new FMCG products and test new food trends to create momentum amid
lockdown.
We cannot be certain about the company’s financials since they haven’t provided for
their Q4 financial reports. ITC did have a great Q3 in December 2019 but since the
pandemic and the new government budget they have had a difficult journey. The taxes
have increased for Cigarettes and a ban has been imposed on all air and travel
services. This has resulted in a lot of business blockage for ITC. ITC has worked for
many years to build a sustainable production and manufacturing unit, they have strictly
followed environmental norms and tend to all sectors of society. Even during the
pandemic they have served all parts of the society through awareness campaigns and
deliveries of essentials. ITC’s chairman is also confident to transform the agriculture
industry because of the enormous job opportunities and focus of food processing
which is possible by physically and digitally engaging buyers and sellers for value
addition.
In an interview in 2015, Sanjiv Puri, the Chairman of ITC, he envisioned that in 5 years
ITC’s food businesses would rise to a Rs. 1000 crore empire. We are yet to see if that
would be possible for ITC in the near future.

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 References

ITC Ltd has diversified presence in FMCG, Hotels, Paperboards & Packaging, Agri-
business and IT. (n.d.). Retrieved from https://www.itcportal.com/

ITC Ltd. Investor Relations, 2020, Retrieved from https://www.itcportal.com/about-

itc/shareholder-value/investor-relations/pdf/itc-initiatives-to-fight-covid19.pdf

MarketScreener. (n.d.). ITC Ltd. : Financial Data Forecasts Estimates and

Expectations: ITC: INE154A01025: MarketScreener. Retrieved May 24, 2020, from
https://www.marketscreener.com/ITC-LIMITED-9743470/financials/

Kurmanath, K. (2020, April 03). Dealing with lockdown: How ITC Agri is working
around farm supply hurdles. Retrieved May 24, 2020, from
https://www.thehindubusinessline.com/economy/agri-business/dealing-with-
lockdown-how-itc-agri-is-working-around-farm-supply-hurdles/article31236246.ece

ET Bureau. (2020, May 22). ITC surges on restart of cigarette factories, hopes of
special dividend. Retrieved May 24, 2020, from
https://economictimes.indiatimes.com/markets/stocks/news/itc-surges-on-restart-of-
cigarette-factories-hopes-of-spl-dividend/articleshow/75876713.cms

Pti. (2020, April 15). ITC expects collaborations with unlikely partners to open new
distribution channels. Retrieved May 24, 2020, from
https://economictimes.indiatimes.com/industry/cons-products/fmcg/itc-expects-
collaborations-with-unlikely-partners-to-open-new-supply-
channels/articleshow/75158609.cms?from=mdr

Ajanta Chakraborty | Updated: Apr 13, 2. (n.d.). Covid-19 lockdown: ITC Hotels
reaches out, helps staff: Kolkata News - Times of India. Retrieved May 24, 2020, from
https://timesofindia.indiatimes.com/city/kolkata/covid-19-lockdown-itc-hotels-
reaches-out-helps-staff/articleshow/75118739.cms

ITC. (n.d.). Retrieved from https://tradingeconomics.com/itc:in:market-capitalization

Standard, B. (n.d.). ITC Ltd. Retrieved from https://www.business-

standard.com/company/itc-301/peer-comparison/marketcap/bse/sector-by-sector

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 Annexure 1

Source:https://www.marketscreener.com/ITC-LIMITED-9743470/financials/

Source:https://www.marketscreener.com/ITC-LIMITED-9743470/financials/

Fig 2 and 3: Rough estimation of ITC’s financial standing in 2020

Note: ITC’s estimated 2020 leverage finances and Income Statement have been attached above since the original
financial reports haven’t been provided by the company.

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