Business Today


- @ ajitashash­idhar

which is not working for them. That money and management focus can be put into interestin­g and scalable opportunit­ies,” says a senior analyst of a Mumbai-based brokerage.

Puri says the larger ambition is to create a business of scale, which will require immense patience. “We believe we have capabiliti­es in the organisati­on to do well, we have synergies to do well. Our businesses have scaled up, deriving competitiv­e advantage by leveraging internal synergies.”

“We are focused on delivering sustained profitable growth. We will do it by entering certain high-potential categories, which we call the new core, by continuous­ly adding new products and variants in existing formats as well as new products which are adjacent to the current formats,” says B. Sumant, Executive Director ITC.

He claims presence in multiple categories gives ITC economies of scale. “In manufactur­ing, we have created integrated consumer goods manufactur­ing and logistics facilities, where we have multiple production lines. So, the overheads of running a factory are amortised over six- seven product categories. We have integrated factories that produce atta, noodles, biscuits, snacks and juices at scale. The idea is to create a distribute­d manufactur­ing network and produce close to the market, thereby ensuring freshness while leveraging logistical advantages. Similarly, when my salesman goes to a store, he sells a variety of products and I save costs on distributi­on, warehousin­g as well as transporta­tion,” says Sumant.

Since it was a late entrant in almost every category, it was important to ensure its products are superior to

what was already available. “Unless our offering is better than the best internatio­nal products, we don’t launch. Being a challenger brand in most categories, which already have entrenched players, it has been our endeavour to innovate smart products that are differenti­ated and serve evolving needs of discerning consumers,” says Sumant. He cites the example of the Fiama shower gel where they introduced a technology that keeps fragrance intact for hours.

Most of ITC’s FMCG products, barring staples and biscuits, play at the premium end of the market and have limited scope for volume growth. Sumant, though, doesn’t agree with this assessment. “Most of our categories are strategica­lly laddered across the range from premium to economy. We have products at all price points. In soaps, we have offerings at the mass end, Vivel competes in the mid-popular segment and Fiama in the premium end. We have a strategy of straddling price points and launching lower unit packs. Even in the premium bodywash segment, we have sachets,” he explains.

Won’t a presence in multiple categories lead to confusion? Puri seldom gets tired talking about the entreprene­urial culture he has built in the organisati­on. He has broken the non- cigarette FMCG business into clusters to ensure agility. “We have reorganise­d the food business into clusters and each cluster has integrated teams that we have empowered to sharpen customer centricity and steer the business. My role has been to mentor all the teams,” he says.

ITC v/s Competitio­n

While ITC’s dependence on cigarettes is definitely playing against it in the stock market, what have HUL and Nestle done right for a blockbuste­r performanc­e? According to Kejriwal, what the market likes about the two companies is predictabi­lity. “Their results are predictabl­e. One is quite sure that one can’t go too wrong by investing in HUL or Nestle. Because of cigarettes, the ITC stock isn’t as dependable.”

HUL is the gold standard for FMCG in India, explains Roy of Edelweiss. “Their parentage gives them access to latest brands, R& D and scale of sourcing. HUL does so well in soaps because of its sourcing capabiliti­es. They source palm oil globally, giving them better sourcing capabiliti­es then ITC, which is limited to India.”

Moreover, both HUL and Nestle are in high ROCE businesses and far more profitable businesses than ITC. “They are also not saddled with a target of serving one lakh consumers. Such targets create problems for shareholde­rs. You may gain scale but will lose out on margins and ROCE. ITC had to do that as its most profitable business is its most controvers­ial business,” says a senior analyst.

On its part, ITC is trying hard to morph into a diversifie­d consumer products business with a basket of good-for-you as well as indulgence products. But will this strategy reduce its dependence on cigarettes? Or, will it listen to the market’s demand for unlocking value? Stock markets investors are hoping the demerger would be announced soon. Let’s wait and watch.


S. Sivakumar, Group Head (Agri and IT), ITC

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 threefour 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.

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:

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 ` 10,500 crore in FY17, our FMCG business has now grown to nearly ` 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 ` 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 ` 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.


 ??  ?? Over 120 new products launched in FY21
Seeded 14 new categories and sub-categories
Build an FMCG business at scale
Growth strategy with acquisitio­ns of Savlon, Nimyle, Sunrise and BNatural
Building new levers of growth and competitiv­eness in agri and paperboard­s businesses
Augmenting a portfolio of valueadded agricultur­al products
E-Choupal 4.0: Crop agnostic ‘Phygital’ platform integratin­g next gen agri-technologi­es and solutions.
'Asset Right' approach in hotels to enable the next horizon of growth and reduce capital intensity
Refreshed Welcomhote­ls brand and launched a new brand “Storii”
Over 120 new products launched in FY21 Seeded 14 new categories and sub-categories Build an FMCG business at scale Growth strategy with acquisitio­ns of Savlon, Nimyle, Sunrise and BNatural Building new levers of growth and competitiv­eness in agri and paperboard­s businesses Augmenting a portfolio of valueadded agricultur­al products E-Choupal 4.0: Crop agnostic ‘Phygital’ platform integratin­g next gen agri-technologi­es and solutions. 'Asset Right' approach in hotels to enable the next horizon of growth and reduce capital intensity Refreshed Welcomhote­ls brand and launched a new brand “Storii”
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