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"We Are Sharply Focused on Creating Long-term Value for Stakeholders"

ITC's FMCG business has been at the centre of the company’s transformation journey. But the market is not impressed, and investors believe a demerger is the only way to bring the stock out of the woods. Chairman and MD Sanjiv Puri is, however, non-committal. In a conversation with Ajita Shashidhar and Rajeev Dubey, Puri shares his strategy for the company’s next level of growth. Edited excerpts:

Sanjiv Puri, Chairman and MD of ITC -- Photograph by Yasir Iqbal Sanjiv Puri, Chairman and MD of ITC -- Photograph by Yasir Iqbal

It’s been three years since you took over as Chairman and MD of ITC. How has the journey been so far?

The overarching objective has always been to ensure sustained value creation for all stakeholders. The journey in the last three-four years has been about architecting the structural drivers for the next horizon of growth and value creation. The strategy reset that I have focused on is to ensure that the organisation remains contemporary, future-ready and one that is extremely consumer-centric and nimble. New vectors of growth have been established across segments and investments are being stepped up to structurally drive competitiveness. There has been a substantial scale-up of digital investments and enabling of agile and purposeful innovation. We have crafted a bold Sustainability 2.0 agenda to build-back better and address the challenges of climate change and the pandemic.

The last few years have seen increased focus on FMCG. What has been your vision for that business?

It is the youngest business in our portfolio and also the most promising. The FMCG product portfolio has been fortified in line with new trends and opportunities and our enterprise strengths. There is a sharper focus on strengthening the existing core, addressing adjacencies through mother brands and creating the new core for the future. We reorganised our structure in the foods business into clusters with empowered and integrated teams. Purposeful innovation, multi-channel distribution networks and digitisation, among others, have been accelerated for powering growth and efficiency. From a topline of around Rs 10,500 crore in FY17, our FMCG business has now grown to nearly Rs 15,000 crore. EBIDTA margins have improved by 640 basis points between FY17 and FY20. In FY21, ITC’s FMCG revenue grew 16 per cent on a comparable basis, nearly double of the industry average. This excludes our acquisition of Sunrise and segments such as education and stationery since schools remained closed. Over 75 per cent of our portfolio has grown by 20 per cent.

Are you looking to unlock any segment, or separate those which are growing slowly and affecting your market valuation?

We are sharply focused on creating long-term value for stakeholders. During the three years from FY17 to FY20, ITC’s EPS (earnings per share) grew 47 per cent. Return on capital employed in the segment has moved up from 61 per cent in FY17 to 72 per cent in FY20. A sharper capital allocation policy has been articulated and annual dividend payouts have been stepped up.

At one point in time hotels and paperboard were separate companies, we brought them in with a purpose, and these businesses have acquired scale and market standing over time. We have already adopted an ‘asset right’ growth strategy for hotels to reduce capital intensity. In our annual report in FY20, we had announced that we were exploring alternate structures for our hotels business. But at the moment there is demand destruction in the segment. We will continue to examine alternate structures. An enterprise exists for stakeholders not just for today, but for tomorrow as well. It must add value for them on a sustained basis. We have to recognise that.

ITC’s stock prices have been stagnant for a while, is that a concern? Analysts believe unlocking is the only solution…

The role of the management is to create sustained value for stakeholders, and that is what ITC is focused on. We continue to create new vectors of growth and redouble our efforts, towards making faster progress.

We are aware that there are concerns from the ESG (environmental, social and corporate governance) investment perspective. However, it is well known that ITC has achieved top scores in ESG from global rating companies. As the ESG investing momentum increasingly tilts towards a more holistic ‘integration’ approach, we are confident that our credentials in the area will stand us in good stead. Last year, because of the pandemic, there has been an impact on demand in certain segments. This affected our EPS last year, but the good thing is that Q4 witnessed appreciable recovery.

Analysts feel you are in too many categories in the FMCG business and there is a lack of focus. You don’t have market leadership position in many categories. What’s your take?

ITC has achieved leadership in several operating segments within a relatively short span of time. I am not aware of any other organisation that has created a portfolio of brands with a consumer spend of Rs 22,000 crore within such a short period. Aashirvaad is the market leader in atta, Classmate is the leader in the notebooks segment, Bingo! is No. 1 in the ‘bridges’ segment, whilst YiPPee! is a strong No.2 in instant noodles. When we launched YiPPee!, it was a 90:10 market. Today, we are close to a fourth of the market. The idea is to attain leadership and that’s what we are pursuing. Market share requires sustained investment and continuous innovation. We are making good progress in many other segments as well. For example, Savlon has been a pioneer in consumer-centric innovations during the pandemic and has a consumer spend of nearly Rs 1,200 crore. We are also creating the ‘new core’ in FMCG such as chocolates, coffee, dairy and beverages, among others, and therefore brands such as Fabelle, Sunbean, Aashirvaad Svasti, and B Natural are being developed with a lot of care. The idea is not necessarily to scale up every category at the same time. We will progressively scale up as we validate the concept or business model in select markets.

@ajitashashidhar; @rajeevdubey