Pakistan Tobacco Company Making Big Growth

Source from:  Business Recorder  07/03/2013

Pakistan Tobacco Company is an associate of leading global tobacco groups, British American Tobacco Company, which has a legacy spreading over more than 100 years. The BATC has its presence in more than 180 countries and is known for its high quality tobacco brands.

From crops to commercialisation, the company is involved in every aspect of the cigarette manufacturing. The product portfolio of PTC is well diversified it has different varieties to offer a wide range of smokers from low price to premium quality high priced cigarettes.

British American Tobacco Company started its operations back in 1947 and is the first multinational to lay its foot on Pakistan. In 65 years, it has grown from a company operating with a warehouse near Karachi port to having two state of the art facilities employing more than 1,700 employees today.

PTC has products that cater to all markets and all consumer choices from low income to prestige brands. It has six different brands to offer its consumers, Dunhill and Benson and Hedges are the premium quality brands. They were re-launched in Pakistan in 2007 and 2003. Both the brands have been performing well since then.

John Player Gold Leaf, the largest urban brand in Pakistan, is the most familiar brand. In the low range segment PTC offers Capstan by Pall Mall (CbPMO), Embassy and Gold flake. Embassy is the leading volume brand, and the most popular brand in Punjab. It's locally tailor-made taste has enabled it to achieve high brand loyalty.

ANNUAL HIGHLIGHTS Even though the government then undertook some significant crackdown drives during 2012, the year did not see any drastic change in the enforcement environment as the consumers continued to be attracted towards the cheaper, duty evaded brands.

Altogether, the legitimate tobacco industry has lost over Rs 80 billion to illicit trade during the last five years. Pakistan Tobacco Company, the biggest player in the industry, played its cards wisely through various marketing initiatives for Dunhill Master Blend, John Player's Gold Leaf, Capstan and Gold Flake.

Also, 2012 was a year of sustainability for PTC after 2011 - a year when workforce was rationalised and the technology was upgraded. The tobacco firms market share during 2012 stood at 50.4 percent compared to 48.6 percent in 2011 primarily on account of the re launching of Capstan by Paul Mall original (CbPMO) a amongst its other initiatives of marketing its brands.

'One in every four cigarettes traded in the country are illicit', the multinational claims. Overall where the company contributed heavily to the national kitty, it continues to feel the threat from the illicit and tax evading cigarette sector continued to mount pressure.

PERFORMANCE 2012 PTC occupies a market with a significant share of the industry. During CY12, the company's brands performed well against the competition and challenging illicit cigarettes market.

The sale volumes of the cigarette manufacturer increased by 2.1 percent year-on-year to 40.6 billion sticks. The company undertook some cost controlling efforts like technology upgrade after the national level ban on the less than 20-a-pack in October 2011, which affected the company's performance back then.

Besides the marketing and selling initiatives for Capstan and Gold Flake, PTC also carried out targeted marketing initiatives for its premium brands, Benson & Hedges and Dunhill. Sales of Dunhill improved versus similar period last year due to the marketing activities on Dunhill Master Blend re-launch.

While the company reigned in the cost of production which helped the cigarette manufacturer improve its gross margins from 9.2 percent during CY11 to 32 percent in CY12, the selling and distribution cost increased by 12 percent year-on-year on the back of the brand strengthening initiatives.

One cost pressure that the Pakistan Tobacco Company incurred back in 2011 was in relation to machinery footprint modification and the workforce rationalisation after the government's decision to ban packs with less than 20 cigarettes. Such one-time expense of workforce rationalisation along with marketing expenditure restricted growth in 2011, and partly in the 2012 margins.

Overall the performance during 2012 improved. However, where the growth in top line was 12 percent year-on-year and the bottom line also leaped by more than profits, the margins still remained a small proportion of the gross revenues. Sales to net turnover stood at almost seven percent, but in terms of gross revenues, margins were a trivial 2.3 percent in 2012.

OUTLOOK Despite the favourable demographics that PTC enjoys by being the market leader and the largest player, and hence its improved margins, the cigarette manufacturer not free from the threat of illegal cigarette market and cigarette smuggling from neighbouring countries like Iran and Afghanistan.

The greatest challenge for the company and the legitimate tobacco sector is the presence of illicit trade especially through the Pakistan-Afghan transit route. The country ranks amongst the top ones in illicit trade in Asia Pacific, and more than 25 percent of the cigarettes available in the market is coming from illegal sources.

As for the taxes that remained minimal during 2012, the latest budget announcement FY14 increased the taxes on cigarettes; however it guards the manufacturers against any impact as the prices will be passed onto the consumers. Enditem