ITC continues to work with an ‘open mindset’ amid slowdown: Sanjiv Puri
Sanjiv Puri told
Sagar Malviya and
Writankar Mukherjee in a recent 90-minutes long interview that the conglomerate is continuing to work with an “growth mindset” during the slowdown, since India is a growth market whereby demand will pick up over time. Puri said having entered 12 new FMCG categories in last five years, ITC is now focussed on scaling up some of these categories rather than adding newer ones. He feels there should be some incentives from the government to create domestic brands that anchor sustainable and inclusive value chains, creates a robust manufacturing base, and benefits the agricultural sector. Edited excerpts of Puri’s views on certain burning issues.
The economy is certainly experiencing a slower rate of growth across sectors. The extent of impact varies and some sectors have been more adversely impacted than the others. The economy is confronted with several sectoral challenges at the moment, which amongst others have led to shrinkage in liquidity. Global headwinds have exacerbated the challenges. Given the immense potential of the Indian economy and the initiatives announced in the recent union Budget to boost income and raise purchasing power, I am confident that over time growth will revive.
India is a consumption driven market. There is enormous headroom for consumption to expand and I certainly believe that sooner rather than later it will start reviving. I believe that a reasonably good Rabi crop and scaling up of infrastructure development as well as the focus on addressing balance sheet issues by the government augur well for the economy. The special focus accorded in the union Budget to the agricultural sector and the initiatives to strengthen infrastructure, on implementation with scale and speed, have the potential to kick-start a virtuous cycle of investment, inclusive growth and employment. This holds the promise to enhance incomes in the future, particularly in rural India, leading to an increase in consumer spends that augurs well for the FMCG industry.
For India to get on a much higher and sustainable growth trajectory, it is important that farm incomes rise. Despite the numerous challenges and complexities of this sector, there are enormous possibilities to enhance farmer incomes including that in the wood-based industry.
As an illustrative example, ITC has spearheaded a successful pilot at scale called “Baareh Mahine Hariyali” covering over two lakh farmers, which is aimed at doubling farmer incomes through the implementation of a package of agri best-practices. This programme has introduced high-yielding varieties of wheat and short-duration paddy as well as climate-smart agricultural practices, like zero tillage to enable improved productivity and timely sowing. ITC is progressively expanding this initiative to one million farmers. The company is also collaborating with NITI Aayog to reach out to two million farmers in 27 aspirational districts.
The need today is to scale up such farmer engagements extensively across every region of the country. But the question is, how do you orchestrate this at a large scale? Village level agri services entrepreneurs, ‘agripreneurs’, can play an important role by handholding farmers with a portfolio of services and integrated solutions and aid the creation of a local micro eco-system to empower farmers. To meet the varied requirements of 120-140 million farmers across the country, it is estimated that opportunities can be created for three million agripreneurs. Such agripreneurs can be empowered with a digital backbone that will provide basic information and know-how and can progressively leverage smart technologies that enable high-yielding, early-warning and waste-mitigating agriculture.
India needs national champions as well as mega brands that not only have a large play in India but a significant presence globally. World-class Indian brands which anchor domestic value chains, especially agri value chains, create enormous economic multipliers. Brands represent a country’s intellectual capital and require deep investments in research and development as well as in brand building. Incentives to create such domestic brands that anchor sustainable and inclusive value chains will enable the creation of a robust manufacturing base and benefit the agricultural sector.
Green shoots of demand
It’s very difficult to say anything conclusively at this point of time. I am hopeful that sooner or later, we will start seeing an uptick.
ITC’s strategy on course
Whilst in such situations of slowdown, there is need for sharpening focus on achieving internal efficiencies and enhance investments in market development, I believe that one must stay the course as far as the strategic agenda of the enterprise is concerned. Given that India is a growth market, demand will pick up over time. We are operating with a growth mindset and will continue to aggressively strengthen the competitiveness and market standing of our businesses and brands. The initiatives that we have undertaken to empower farmers will also contribute to enhancing incomes and boosting consumption.
Asset right model for hotel biz
As far as hotels are concerned, we are now moving to a more asset right strategy to enable a faster rate of growth. There is a lot more focus on management contracts including those in adjacent geographies. We have over the years built our own footprint in terms of iconic properties and cuisine which has reinforced our market standing. We have restaged the Welcomhotel brand recently to anchor managed properties. I expect that in the next few years, more than 75% of the hotels that are added under our brands will be managed properties. The hotels business has spearheaded significant interventions in enhancing operational efficiencies and has made technology investments, the results of which are reflected in EBITDA growing 20% last year. This trend continues with a robust growth of 34% in the first nine months of this year.
2030 FMCG vision of Rs one lakh crore sales
We continue to grow all our FMCG businesses with that aspiration. The focus is on scaling up our businesses with growing market share and profitability. The new FMCG segments have shown continued improvement in profitability over the last couple of years with EBITDA growing 2.6x despite the increase in marketing investments, gestation and start-up costs of new categories as well as new facilities and increase in input costs. This growth trajectory has been sustained in the current year with EBITDA growing 48% in the third quarter and 43% in the first nine months of the current fiscal. The investments made in nine large integrated consumer goods manufacturing facilities will over time provide structural cost advantages and enable better market servicing with progressive increase in capacity utilisation. Our innovation engine is at work 24*7 to create products for today, tomorrow and the day after. We have entered 12 new categories and built 13 new brands in the last 5 years. The focus right now is on scaling up some of the categories that we have forayed into in recent times rather than adding newer categories.
Foray into healthcare
Healthcare is an area we have been studying for a long period of time. It’s a completely different and new area for us at ITC. So, we are yet to completely decide on the approach. In line with our philosophy of patient centricity, we are likely to approach it from a not-for-profit perspective. We need to study and understand it completely before we take a final decision.
Future of retail business
We have sold John Players and have restructured Wills Lifestyle and have made it much smaller. We will take a decision in due course on what we will do with the business but we are very clear that the model we had adopted earlier was not giving us the desired results.
Increase in cigarette taxation
It has been seen that whenever there has been an increase in taxes, it provides a fillip to the growth of illegal cigarettes in the country. With tax incidence trebling between 2011-12 and 2017-18, the legal industry lost substantial volumes while the illegal industry grew at a similar pace. What is more important to note is that while excise duty on cigarettes was increased by 15%, growth of tax revenue on this account was in low single digits during the period of punitive taxation. In contrast, during the period of tax stability, tax revenue grew by 9% and the industry had an opportunity to claw back and protect some volumes. The recent increase will unfortunately once again provide a fillip to illegal and smuggled cigarettes thereby impacting the legal domestic industry, farmers as well as the exchequer. FICCI estimates that on account of illegal cigarettes alone, the revenue loss to the government is more than Rs 13,000 crore per annum. Unfortunately, smuggling not only leads to revenue loss and fuels anti-social activities, it also ends up exporting jobs out of the country in the agri-manufacturing value chain. With tax stability, Indian farmers would have also benefitted as smuggled cigarettes do not use Indian tobacco.
What to expect from ITC
We are traversing a fast-paced journey of transformation with the aspiration to be a leader in every business segment. We continue to diversify our portfolio, aggressively pursuing growth with profitability. Appreciable progress has been made in our non-cigarette businesses which is reflected in the EBITDA growing 16% last year and at a similar pace this year as well. We have the largest opportunities in the FMCG space where we are making focussed investments in building brands, portfolio premiumisation, introducing innovative, first-to-market products leveraging ITC Life Sciences and Technology Centre (LSTC), expanding offerings in the health and wellness segment, crafting affordable and accessible products, and enhancing distribution reach. Our institutional strengths of agri-sourcing, brand building, cuisine expertise of our hotel chefs, R&D capabilities of the ITC LSTC, distribution reach together with our state of the art manufacturing assets will strengthen our competitiveness and enable scalability going forward. The investments already made in world-class pulp and paperboard technology, iconic hospitality properties while pursuing an asset right strategy and increasing focus on value addition in Indian agriculture will also lend new wings to our efforts in driving profitable growth. In the cigarettes business, while the biggest threat is the surge of the illegal segment, we will continue to strengthen our position with high quality offerings, products and brands.