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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FINC005) click on the button below, and select the case from the list of available cases:
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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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"ITC is ready to hawk ITC Classic to anyone, for even a rupee."
- An ITC Classic manager in 1997.
"There is no value in ITC Classic. I wonder how ICICI will benefit from the merger!"
- A stockbroker in 1997.
Troubled Times
In late 1996, almost half of the executives on board of the tobacco to hotels major ITC Ltd. were in jail on charges of FERA and excise violations.
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It was at this point that the downfall of ITC Classic Finance (Classic), ITC's flagship financial services 49% subsidiary, began. The scandals in ITC had a massive damaging effect on the ITC brand and corporate image.
The impact got reflected on Classic too and it was inundated with desperate fixed deposit holders wanting to withdraw their funds. Funds worth over Rs 50 crore were withdrawn within a few days after the crisis broke out.
The continuing uncertainty on fund flows into the company and the eroded value of its portfolios began scaring off potential investors and foreign partners as well.
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International Finance Corporation (IFC), which was to provide a credit of $ 45 million to Classic, also held back the offer till 'things cleared up.'
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Analysts were quick to raise fingers at Classic's negative cash flows, its huge asset liability mismatch and the slow process of divestment of stakes held by Classic in the ITC group companies. Like the proverbial 'final nail in the coffin,' Classic declared a Rs 285 crore loss in June 1997, which almost wiped out its entire net worth.
Meanwhile, troubles mounted as redemptions kept increasing - from Rs 750 crore in mid 1996, deposits came down to Rs 550 crore in May 1997. From a peak level of one million depositors, Classic was left with just six lakh.
ITC gave Classic a Rs 75 crore credit line to maintain cash flow to meet the redemption pressure... |
The ITC Classic Story
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