The moat was used as a defence mechanism for castles. Usually, they were filled with water to reduce the risk of fires and create a barrier for horses and their riders. The moats were created very deep, which made them harder to cross.
Most are familiar with the sight of a moat, traditionally dug around castles, and frequently filled with water. When the moat was first employed, it was meant to provide an additional defense of castles, towns, or large installments of people. A water filled moat made extremely difficult to storm a castle and or gain access to the walls of a fortress. Attacking armies could not simply climb the walls, and attempt to bring them down, because the moat proved a formidable obstruction. Further, attempts to fill in the moat or provide a crossing was often met with a volley of arrows, to discourage such attempts.
During the early Middle Ages, a moat might not be filled with water. It was still a trench deep enough to render it difficult for attackers to breach the walls of a building. A moat not filled with water is a dry moat. Later, most moats were filled with water. However, they were not, as some suppose, filled with alligators or sharks. It would have been virtually impossible to keep sharks alive in moat conditions; it’s very hard to keep them living even in today’s aquariums. Keeping alligators would also have proven impractical.
Most early versions of the moat did not have drawbridges, as one most often thinks. They did have bridges that could be removed easily at the approach of an enemy. In most cases, drawbridges were not employed until the late Middle Ages.
Though we commonly think of the moat in association with European Castles, Medieval Japan and China had impressive moat systems guarding cities and castles. Some Japanese cities would have not one but several moats. Some buildings might be built between some of the moats, but the vital parts of the city could be protected by as many as three moats. Sometimes these moats were the dry moat variety. Today, a few moats remain, like the one surrounding the Japanese Imperial Palace.
Some Native American tribes also built moats around central living areas, at least as far back as the 16th century. These provided some protection against raiding tribes or raiding Europeans. However, the introduction of the rifle to American Indians did render some moats useless, unless they were very wide.
Trenches dug during many wars work on the principal of the moat, though these are dry moats. Even today, a military force may dig large trenches to slow down an enemy, make motor transport impossible, or to keep tanks from crossing. A moat or trench can also be a useful place to hide during long battles.
Moats also frequently are used in zoos to keep animals in. These normally span a large, unjumpable distance, and are fairly deep. Fans of the computer game Zoo Tycoon, know digging a moat around dinosaur installments is an excellent way to keep large predators from escaping and eating the scientists.
ITC's low-tax cigarette launch has helped boost margins.
Investment Thesis
ITC, India’s largest cigarette manufacturer by revenue, has garnered leading market share through its popular brands. It's not without its share of challenges, which include competitive pressures from cheaper substitutes such as chewing tobacco and leaf-rolled tobacco, and the potential for further government intervention (like the passage of higher taxes). Even so, ITC has defended its turf for several years by investing in product innovation, and in marketing its core brands. In addition, ITC has also recently expanded its product set to include lower-priced products (which are subject to a lower tax rate) to expand its customer reach. This has allowed it to post solid sales growth and expand operating margins in its cigarette business, despite rising taxes. We believe ITC will continue to hold a dominant position in the Indian cigarette market for over a decade, and we think Indian smokers will trade up to more premium brands as the prevalence of smoking increases (unlike in developed economies, where smoking is declining).
We believe ITC Limited enjoys a narrow economic moat, owing to its brand strength, pricing power, and the addictive nature of its core product. Large competitors, including Godfrey Philips and VST Industries, combined, hold approximately 20% share of the Indian cigarette market. Less than 5% of the total market by value, but 48% by volume, is served by over 300 unorganized cigarette and leaf-rolled tobacco manufacturers, which pose a low-price substitute to branded cigarettes. By launching branded products at lower price points, ITC has been able to effectively compete with these unbranded tobacco producers, and improve its market share over time.
ITC holds a greater-than-majority share of India's organized cigarette market, and has been able to raise prices while maintaining volume growth. Given that most smokers remain brand loyal for a long time, and are addicted not only to smoking but also to the taste of their particular brand, we believe that ITC has a narrow economic moat and will sustain its leadership in the Indian cigarette market, despite competitive and regulatory pressures.
Risk
The major risks facing ITC stem from potential changes in government regulations related to taxation, manufacturing licenses, and advertising or distribution bans. More specifically, if the government drastically increases the excise tax rate on cigarettes (similar to past actions), the company's production volumes and profitability could suffer. Apart from regulatory risks, we also believe there is a risk that ITC management may expand further into less profitable businesses--and away from its core competencies in cigarettes--which would not be in the best interest of its shareholders. Overall, we rate ITC as having medium uncertainty, reflecting that the firm derives more than half of its sales from the cigarette business, which in itself is a non-cyclical business that operates with minimal financial leverage.
Company Profile
ITC Limited is the largest cigarette manufacturer by revenue in India, with more than INR 300 billion in annual revenues and only 10% of its sales coming from outside India. ITC’s major business segments include cigarettes (56.2% of net sales), consumer products (14.6%), agricultural produce (14.9%), paper-related products (9.3%), hotels (2.4%) and other (2.6%). The company started as a subsidiary of Imperial Tobacco IMT in 1910, but today is 31% owned by the global cigarette giant, British American Tobacco BTI.
Most are familiar with the sight of a moat, traditionally dug around castles, and frequently filled with water. When the moat was first employed, it was meant to provide an additional defense of castles, towns, or large installments of people. A water filled moat made extremely difficult to storm a castle and or gain access to the walls of a fortress. Attacking armies could not simply climb the walls, and attempt to bring them down, because the moat proved a formidable obstruction. Further, attempts to fill in the moat or provide a crossing was often met with a volley of arrows, to discourage such attempts.
During the early Middle Ages, a moat might not be filled with water. It was still a trench deep enough to render it difficult for attackers to breach the walls of a building. A moat not filled with water is a dry moat. Later, most moats were filled with water. However, they were not, as some suppose, filled with alligators or sharks. It would have been virtually impossible to keep sharks alive in moat conditions; it’s very hard to keep them living even in today’s aquariums. Keeping alligators would also have proven impractical.
Most early versions of the moat did not have drawbridges, as one most often thinks. They did have bridges that could be removed easily at the approach of an enemy. In most cases, drawbridges were not employed until the late Middle Ages.
Though we commonly think of the moat in association with European Castles, Medieval Japan and China had impressive moat systems guarding cities and castles. Some Japanese cities would have not one but several moats. Some buildings might be built between some of the moats, but the vital parts of the city could be protected by as many as three moats. Sometimes these moats were the dry moat variety. Today, a few moats remain, like the one surrounding the Japanese Imperial Palace.
Some Native American tribes also built moats around central living areas, at least as far back as the 16th century. These provided some protection against raiding tribes or raiding Europeans. However, the introduction of the rifle to American Indians did render some moats useless, unless they were very wide.
Trenches dug during many wars work on the principal of the moat, though these are dry moats. Even today, a military force may dig large trenches to slow down an enemy, make motor transport impossible, or to keep tanks from crossing. A moat or trench can also be a useful place to hide during long battles.
Moats also frequently are used in zoos to keep animals in. These normally span a large, unjumpable distance, and are fairly deep. Fans of the computer game Zoo Tycoon, know digging a moat around dinosaur installments is an excellent way to keep large predators from escaping and eating the scientists.
ITC's low-tax cigarette launch has helped boost margins.
Investment Thesis
ITC, India’s largest cigarette manufacturer by revenue, has garnered leading market share through its popular brands. It's not without its share of challenges, which include competitive pressures from cheaper substitutes such as chewing tobacco and leaf-rolled tobacco, and the potential for further government intervention (like the passage of higher taxes). Even so, ITC has defended its turf for several years by investing in product innovation, and in marketing its core brands. In addition, ITC has also recently expanded its product set to include lower-priced products (which are subject to a lower tax rate) to expand its customer reach. This has allowed it to post solid sales growth and expand operating margins in its cigarette business, despite rising taxes. We believe ITC will continue to hold a dominant position in the Indian cigarette market for over a decade, and we think Indian smokers will trade up to more premium brands as the prevalence of smoking increases (unlike in developed economies, where smoking is declining).
We believe ITC Limited enjoys a narrow economic moat, owing to its brand strength, pricing power, and the addictive nature of its core product. Large competitors, including Godfrey Philips and VST Industries, combined, hold approximately 20% share of the Indian cigarette market. Less than 5% of the total market by value, but 48% by volume, is served by over 300 unorganized cigarette and leaf-rolled tobacco manufacturers, which pose a low-price substitute to branded cigarettes. By launching branded products at lower price points, ITC has been able to effectively compete with these unbranded tobacco producers, and improve its market share over time.
ITC holds a greater-than-majority share of India's organized cigarette market, and has been able to raise prices while maintaining volume growth. Given that most smokers remain brand loyal for a long time, and are addicted not only to smoking but also to the taste of their particular brand, we believe that ITC has a narrow economic moat and will sustain its leadership in the Indian cigarette market, despite competitive and regulatory pressures.
Risk
The major risks facing ITC stem from potential changes in government regulations related to taxation, manufacturing licenses, and advertising or distribution bans. More specifically, if the government drastically increases the excise tax rate on cigarettes (similar to past actions), the company's production volumes and profitability could suffer. Apart from regulatory risks, we also believe there is a risk that ITC management may expand further into less profitable businesses--and away from its core competencies in cigarettes--which would not be in the best interest of its shareholders. Overall, we rate ITC as having medium uncertainty, reflecting that the firm derives more than half of its sales from the cigarette business, which in itself is a non-cyclical business that operates with minimal financial leverage.
Company Profile
ITC Limited is the largest cigarette manufacturer by revenue in India, with more than INR 300 billion in annual revenues and only 10% of its sales coming from outside India. ITC’s major business segments include cigarettes (56.2% of net sales), consumer products (14.6%), agricultural produce (14.9%), paper-related products (9.3%), hotels (2.4%) and other (2.6%). The company started as a subsidiary of Imperial Tobacco IMT in 1910, but today is 31% owned by the global cigarette giant, British American Tobacco BTI.
