The ITC Classic Story


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Case Details:

Case Code : FINC005
Case Length : 6 Pages
Period : 1991 - 1996
Pub. Date : 2002
Teaching Note : Available
Organization : ITC Classic, ICICI
Industry : Financial Services
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Classic: The ITC Fostered Baby

Named after ITC's premium cigarette brand 'Classic,' Classic was incorporated in 1986.

Classic was a non-banking finance company (NBFC) predominantly engaged in hire purchase and leasing operations. Besides, the company undertook investment operations on a substantial scale.

The company did very well in the initial years and developed a strong network to mobilize retail deposits. Its fund-based activities such as corporate leasing, bill discounting and equities trading also grew substantially over the years. At a compounded annual growth rate of 78% during 1991-96, Classic's annual turnover increased from Rs 17.3 crore to over Rs 310 crore and net profits from Rs 2.3 crore to Rs 31 crore in the same period.

By June 1996, the company had a deposit portfolio of Rs 800 crore consisting mainly of retail deposits.

The capital market boom of the early 1990s was responsible to a large extent for Classic's impressive financials. Around 50% of Classic's assets had to be kept in financing and a further 25% was to be held in liquid funds or cash to handle cash outflows. However, Classic was free to invest the remaining 25% as it deemed fit - which happened to be in the 'boom stocks.' When the markets crashed in 1992, Classic had to face heavy losses. Like most other finance companies, Classic too saw the 1995-96 stock market downturn taking a toll on its performance. A sharp increase in cost of funds, weak capital market conditions and the general liquidity crunch marked the beginning of the company's poor financials...

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