EghtesadOnline: Iranian Tobacco Company will be listed on Tehran Stock Exchange in the near future.
According to Siavash Afzali, managing director of the company, 10% of the shares of the company will be sold through an initial public offering to determine its value in the first stage and then all the shares will be offered as per the calculated price.
“More than 70% of ITC products were loss-making in the first half of the fiscal 2019-20, i.e., their prices were lower than market [prices]. But now the profit margin stands at 17-20%,” he was quoted as saying by IRNA.
ITC produced over nine million cigarettes in the last fiscal year (ended March 20, 2021), which indicate a 50% increase compared with the year before, according to the managing director.
“ITC’s share of Iran’s tobacco market improved from 5% to 12-14% last year. Annual cigarette consumption in Iran stands at 75 billion. Last year, a total of 55 billion cigarettes were produced in Iran, of which 9.1 million were produced by ITC and the rest, i.e., 70% of the market, by Japan Tobacco International and British American Tobacco,” he said, adding that about 20 million cigarettes were smuggled into the country in the year to March 20.
He put the value of Iran’s tobacco market at 400 trillion rials ($1.6 billion) and said ITC has the capacity to produce 25 billion cigarettes annually.
“It has 6,000 people on its payroll and 6,000 farmers are collaborating with the company,” he added.
Noting that the company’s sales, production and market share increased by 23%, 50% and 70% last year, Afzali said, “Five batches of tobacco weighing 10 tons each were exported to Russia and Arab countries last year, but export is not financially viable due to high import tariffs of other countries.”
The ITC chief said one of the goals of ITC in the current year is to make products with less smoking-related health risks.
“So we had negotiations with a European company to jointly produce smokeless tobacco named Snuff. The permit has been secured from the Ministry of Industries, Mining and Trade while the permit of the Health Ministry is awaited,” he added.
Iranian Tobacco Company was launched in 1937 as a state-run monopoly to develop the domestic tobacco industry.
One of the oldest tobacco companies in the Middle East, ITC is engaged in the cultivation of tobacco and production of cigarette, pipe and hookah tobacco. It owns factories in Tehran, Kurdestan, West Azarbaijan, Isfahan, Gilan, Mazandaran and Golestan provinces and produces different brands of cigarettes, including Bahman, Zika, Caspian and Farvardin.
Repeatedly replacing ITC’s top officials, employing unqualified executives, rising objections by health officials against the development of tobacco industry and lack of scientific and practical plans are among reasons holding back the development of tobacco industry in Iran.
Many experts believe the company’s privatization during the second term of former president, Mahmoud Ahmadinejad, when 55% of the shares of the company were transferred to Steel Industries Pension Fund in 2010 as part of the government’s debt to the organization, marked the onset of a major crisis for the company.
The privatization process brought forth an array of proponents and opponents. Many believed it was only a change of ownership between two government agencies and some believed it was a significant move toward streamlining the tobacco industry.
Soon muscle-flexing by shareholders of Steel Industries Pension Fund, when it came to selecting executives, provoked the discontent of ITC’s seasoned managers and professionals. They saw new executives of the company, who barely had any knowledge of tobacco industry, acting as destabilizing elements.
Critics believe the pension fund’s shareholders view ITC as a piggy bank to solve the problems of the fund.
Under the circumstances, the decline in ITC’s revenues gave rise to several other problems, including complications in providing raw materials for production lines, substantial cuts in the payments of employees or poor insurance service to workers.
All these problems robbed the company of the chance to pursue bigger goals like increasing the domestic production of tobacco by lending support to farmers. These crises, together with the activities of foreign rivals and smugglers, further reduced the share of ITC from the Iranian cigarette market.
In fact, these problems directly affected tobacco farmers, as they only had ITC as their customer. The company’s lower-than-expected buying prices or its delayed payments disheartened tobacco farmers. Consequently, they shifted to growing other agricultural products.
In early 2020, Iran’s Court of Administrative Justice announced that Steel Industries Pension Fund is owned by the state and therefore its affiliates, including ITC, to which the government allocates a budget, are state assets.