ITC Ltd and BAT of the UK have signed an agreement on licensing of BAT brands to ITC, the company said in a brief communication.

The agreement is subject to approval by the Union Government, ITC said. The agreement was signed after several rounds of negotiations both in London and in Calcutta last week. With this agreement, ITC will manufacture and market BAT brands State Express 555, Benson & Hedges and Lucky Strike among others.

According to informed sources, the registered user licence agreement will be valid for 20 years and will involve a royalty payment of two-three per cent of annual net sales. Sources say that the brand licensing agreement will ultimately be in BAT's favour as the decision to renew the licence after the expiry of the 20-year period would rest with BAT. Once the brands are well established in the country, they would give ITC brands a run for money and also eat into its market share, which is 67 per cent. During this period, however, ITC would benefit from higher sales and profitability in the cigarette industry which is growing at the rate of eight per cent pa.

At present, five of the six leading brands in the country belong to ITC.

On the part of BAT, the agreement became unavoidable as its proposal for a 100 per cent subsidiary in India to channelise investments in tobacco, insurance and financial services received a setback with the government directing it to consult ITC for its tobacco investment plans.

ITC, meanwhile, is taking up an aggressive modernisation drive at all its factories in Bengal, Bihar and Karnataka to create a niche for its premium brands which will be directly competing with all foreign brands on domestic soil. Chairman Y C Deveshwar's avowed policy is to fine tune pricing and add value in cigarette packaging.

Meanwhile, ITC deputy chairman Feroze Rustom Vevaina, who faces allegations of Fera violations, has resigned from the board of the tobacco major on medical grounds, ITC sources said on Monday.

Vevaina had been long `indisposed' and was attending the Mumbai office of the company for two hours a day, the sources said.

He had also failed to respond to several summons by the enforcement directorate for his alleged involvement in the $ 115 million Fera scandal.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.