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Drumbeat: Ad Buzzaar
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Tuesday, July 14, 1998
A shot in the arm
The vindication of ITC's stand against the Chitalias in a US court is a shot in the arm for the beleaguered company, which has been fighting allegations against it under the excise laws and under the Foreign Exchange Regulation Act. Since the Chitalias were approvers in the Enforcement Directorate's case against the company management, it can now be argued that the favourable judgment in the US court throws some doubt over the weight of the evidence adduced by the Chitalias. Far more importantly the judgment will act as a tonic for the company management, which has been fighting a desperate rearguard action against all the mud which has been flung at it. The stockmarket, of course, has never had much doubt about the company, and the ITC scrip has been teflon-coated against all the allegations. This confidence in the scrip by investors stems essentially from ITC's entrenched position as the number one tobacco major in the country. This has enabled the scrip to shrug off not only the massive excise demand madeon the company, but has enabled it to beat the Sensex even though the company has been a favourite of successive finance ministers so far as imposing taxes is concerned.ITC's spat with BAT is history, but in hindsight both parties were wrong about the businesses ITC should be in. ITC's ventures into trade and agro-business was a disaster, but BAT's preference for financial services too was misplaced. ITC's need to diversify stems from the slow growth in the cigarette industry, and it needs to find an outlet for its substantial cash flows. That is the reason for its new focus in the hotel industry. Margins in this business are high, and prospects good. ITC is still hobbled by its paper business, but victory over the Chitalias will help the company gain confidence and put to good use the substantial management talent at its disposal. Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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