godfrey phillips india ltd_companyanalysis2934234.docx

7/29/2019 GODFREY PHILLIPS INDIA LTD_CompanyAnalysis2934234.docx

1/5

Godfrey Phillips India LtdCompany Analysis

INDUSTRY ANALYSIS OF THE CIGARETTE INDUSTRY

Industry Trends:

Global Perspective:

The world No Tobacco Day was celebrated on 31st

May by WHO to remind the world

of the tobacco industrys efforts to weaken the WHO Framework Convention on Tobacco

Control (FCTC). The overwhelming response all over the world necessarily came as an eclipse

to the Industry. There are approximately one billion smokers all over the world and the revenue

generated is hundreds of millions USD. WHOs 14th

World Conference was the very first firmstep to curb the rising monopoly of the industry. In contradiction to this, we can see how much

the industry contributes to the GDP via taxes. It is also a source of employment. Also they have

been constantly striving to lessen the wastes, tar and nicotine level, reduce the tobacco per

cigarette. But then most of the governments all over the world want that lesser number of people

smoke cigarettes & so they are levying heavy taxes, they are creating awareness among people

with help of media, NGOs, etc. So, the social & economic atmosphere is becoming tougher for

them to sustain. Today there are reports even taking an objection on the packing style & design

of the cigarette packets (Source:http://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-

packets-children-plain-packs). At the same time it has been made compulsory that they give

cautionary warnings in written on the packets in a legible fashion. So, the companies undertake

organization of music concerts and allied activities for marketing purpose, for which they are

criticized. So, overall the picture is grim for the industry as the only source of marketing is word

of mouth, to add, the social & economic factors are strenuous.

Indian Perspective:

The condition is the same for the industry in India, but the explanation is a bit different.

Putting forth the statistics, India is the second largest producer of tobacco in the world. As well

as it is one of the leading exporters of tobacco in the world. Agriculture contributes 24% to the

GDP & 13.5% of it is tobaccos share. It provides employment to nearly 4 million persons. Here,the taxes on cigarettes are high, however, the taxes on bidis & other forms of tobacco is very

less. So, the effort of the government will not bear any fruit as the market for bidis is 85% of the

total number of smokers. The industry is reeling under ever increasing taxes, thus, the

competitiveness of the industry is been negatively affected. In such a scenario, they are going in

for unrelated diversification.
http://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-packets-children-plain-packshttp://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-packets-children-plain-packshttp://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-packets-children-plain-packshttp://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-packets-children-plain-packshttp://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-packets-children-plain-packshttp://www.guardian.co.uk/commentisfree/2012/jul/17/tobacco-packets-children-plain-packs


2/5

PEST Analysis:

Political: Following the increasing health concern about tobacco consumption, the

Central Ministry of Agriculture has not launched any development scheme for the crop since the

completion of the Seventh Five-year plan. The political impact of the decisions made by the

policy makers is inter twined with the economic impact of these policies, this has been discussed

further.

Economic: The non-smoking tobacco products, commonly used among rural masses, are

not taxed. Bidis, which are used by people in lower economic strata of the society, are not taxed

or are lightly taxed. The prices of certain tobacco products cheaper for low-income groups, those

products which forms the major 85% market of the tobacco industry, ignores the potential higher

occurrence of tobacco related diseases. Thus, the government taxation system is a fiscal policy.

Many arguments are put forth, like the employment, income generation etc., but the policy

makers have to understand that this a myopic judgment. Thus, lesser investments in R&D &

affecting the exports and thus, the competitiveness of the industry.

Social: The advertisements have been banned; smoking has been banned in public places,

government offices; awareness has been brought about by every possible mean about the harmful

effects, lawsuits have been designed, increased government regulation and public litigation has

created gloomy situation for the industry. It has been observed that there are some pediatric

problems as well. Since, the industry needs new persons to replace the old and dead ones; they

somehow influence the younger ones.

Technological: the cigarette industry in India has generally not kept pace technologically

with the developed countries, e.g. the cigarette making rate. But there are many things that have

improved: they have been modernizing their processing and manufacturing facilities, with new

or upgraded machines introduced for cigarette making to improve processing, reduce component

prices and improve quality and efficiency; they have reduced cigarette damage and waste;

reduced tar and nicotine levels through filterization; reduced usage of tobacco per cigarette;

improved cigarette paper and filter design; reduction in tobacco used per cigarette has been

significant.

Competitor Analysis:

Shares in Indian Market: ITC: 72%, Godfrey Phillips: 12%, GCT: 8%, VST: 8%.

However, the aim of Godfrey Phillips is to be the number one player in the market. So, let us

analyze the different parameters like pricing, quality, and distribution etc. of this company in a

precise matter


3/5

Pricing: The pricing strategy of ITC includes provisions like increasing the prices of

items that are particularly meant for high paying strata of the society to meet with the tax levels.

The broader market is that of bidis. So, they are trying to explore that section as well. Bidis

market is either lightly taxed or not at all taxed.

Quality: There have been made consistent efforts made to improve the quality of the endproducts. New filter cigarette segment of less than 60mm size is being developed, the initiative

under progress. They have been awarded many prestigious awards like 'Best Manufacturer of

Cigarettes' for the year 2008 & 2007 and Best Exporter of Cigarettes for 2008. ITC's cigarettes

are manufactured in state-of-the-art factories with cutting-edge technology & excellent work

practices benchmarked to the best globally.

Distribution: Excellent distribution network.

(We will discuss Godfrey Phillips in detail in the later part of the analysis.)

SWOT Analysis:

Strengths: India is a country with huge population. So, there is a vast scope of increasing

the business. Addictive nature of cigarettes, Distribution Network

Weaknesses: Heavy taxes levied, awareness among people about the ill effects of

smoking, no chance for advertisement,

Opportunities: Bidis is an unexplored segment, international market penetration

Threats: e-cigarette, increased smuggling due to increase in taxes, Growing anti-tobacco

activities


4/5

COMPANY ANALYSIS OF GODFREY PHILLIPS INDIA LTD

Company Description:

Godfrey Phillips India Ltd. is Indias second largest cigarette maker. It is number one

cigarette company in North India and Indias number one cigar marketing organization. GPI

owns FS1, Four Square, Red and White, Jaisalmer, Cavanders and Tippers.

General Information:

Headquarters: New Delhi

Manufacturing Units: Mumbai, Ghaziabad, Kolkata, Uttaranchal

Sales Division: Chennai, Delhi, Ahmadabad, Hyderabad, Mumbai, Kolkata

Establishment Year: 1946

Number of Employees: 1000

CEO: Surinder Seru

Share Holding Pattern: The major promoter is Modi group. The promoter held shares

have decreased drastically, which can be a negative sign. As far as the FIIs are concerned; they

have remained almost the same in the two consecutive quarters.

Financial Performance of the Company:

(Source:http://www.moneycontrol.com/financials/godfreyphillipsindia/ratios/GPI)Net Profit: Rs. 459 million on dec., 2011

Its profit has declined 25.44% in March 2012 quarter.

Net Sales: Rs. 4820 million on dec., 2011

Dividend per share is increasing, which implies that growth can be sustained.

Net operating profit per share is also increasing.

Earnings per share & book value are increasing steadily.


5/5

Overall the company prospects seem bright

godfrey phillips india ltd_companyanalysis2934234.docx

Documents