EXCLUSIVE: Digital and sustainability are mega trends that will shape the post-pandemic future: ITC Chairman Sanjiv Puri 

ITC Chairman Sanjiv Puri is not averse to the idea of demerger of the conglomerate’s fast moving consumer goods (FMCG) business. Puri is also open to the idea of listing the company’s information technology (IT) businesses — ITC Infotech — as long as it creates sustained value for shareholders.

In a detailed interview, Puri said the company has also not shelved demerger plans for the hotel business. But he wants the market to recover. Puri made it clear that ITC has enough cash for investments but everything will depend on how market forces change over the next few years. Excerpts:

Let’s talk about the key tenets of the “ITC Next Strategy”. What’s in store?

The ‘ITC Next’ strategy focuses on the structural drivers that will power the company’s next horizon of growth and ensure that the enterprise remains future-oriented, consumer-centric and agile. New vectors of growth have been identified for each business to drive scale and profitability.

The key tenets of ‘ITC Next’ include leveraging ITC’s institutional synergies and power brands, a future-ready portfolio to create strong growth platforms, purposeful and agile science-based innovation, and accelerated investments in digital and sustainability. We will also be exploring additional opportunities for growth through value accretive M&As as well as enhanced investments to drive exports. A strategy reset over the last 3-4 years has led to structural interventions to drive margin expansion and capital productivity.

Recognising digital and sustainability as two mega trends that will shape the post-pandemic future, ITC will continue to explore opportunities to craft disruptive business models anchored at the intersection of Digital and Sustainability, leveraging its institutional strengths. We have already articulated a bold and ambitious Sustainability 2.0 Vision to build further on our exemplary ESG performance. The strategy of the organisation has been redefined to build integrated and empowered teams driven by a spirit of professional entrepreneurship — ‘Proneurs’ — that is aimed at sharpening consumer centricity, agility and focus.

How is your FMCG business shaping up? You must have drawn up a plan to drive margin expansion? 

ITC has been one of the largest incubators of FMCG brands in India. We have built a portfolio of 25 mother brands that today have a consumer spend of over Rs 22,000 crore. Over the last four years, our revenue from the FMCG business has increased from Rs 10,500 to Rs 15,000 crore with several of ITC’s FMCG brands having already achieved leadership positions.

In the last four years, margins have gone up by 640 basis points through strategic interventions that include product-mix enrichment, bringing in back-end efficiencies, increasing focus on value-added segments and leveraging digital. Sharp-targeted structural interventions encompassing smart sourcing, development of an agile supply chain and robust capacity utilisation through a distributed manufacturing footprint have led to superior back-end efficiencies.

The FMCG portfolio has been revitalised to make it future-ready, address emerging trends and develop categories of the future. Business segments that were incongruent to our growth aspirations have been shrunk. Investments have been made to enable agile and purposeful innovation through identified R&D platforms to power our brands. Besides deepening and widening reach, new routes to market have also been developed, which include strategic partnerships like Amway, a climate controlled supply chain, and scaling up foods services, among others.

ITC has also strengthened its direct-to consumer platform, the ITC e-store, which showcases the wide array in the company’s product portfolio under one roof, besides enabling trend spotting and gaining consumer insights.

So will there be more acquisitions in the FMCG space? 

ITC will continue to evaluate value-accretive and synergistic inorganic opportunities as an additional pillar of growth. Acquisitions are guided by considerations such as strategic fit, valuation, financial viability and ease of integration. In recent times, the company has acquired brands such as ‘Savlon’, ‘Nimyle’ and ‘Charmis’ to strengthen its presence in the Personal Care Products Business.

In July 2020, the Company acquired 100 percent of the equity share capital of M/s Sunrise Foods Private Limited (Sunrise), an Indian company primarily engaged in the business of spices. Savlon has grown 14-fold and Nimyle has also grown 5 times since acquisition.

So what are the focus categories for ITC, and in which areas will you lower focus?

We have identified FMCG segments where there is tremendous headroom to grow given low penetration by branded players. Experts have estimated that the overall addressable market segment for our FMCG portfolio would be about Rs 5 lakh crore by 2035. A multi-pronged approach has been adopted to revitalise the company’s FMCG portfolio. First by fortifying and scaling up our megabrands like Aashirvaad, Sunfeast and others. Secondly by addressing adjacencies through brand extensions, and thirdly by incubating new categories.

The choice of category is guided by its growth prospects, profitability profile and the ability of the company to effectively leverage its institutional strengths with a view to achieving leadership status within a reasonable time-frame. For example, Aashirvaad has emerged as a strong centre-of-plate brand, straddling many value-added categories, including multigrain atta, Superfoods range with multi-millet mix, ragi flour, gluten-free flour, organic atta, vermicelli, ready-to-cook options like poha, upma, suji halwa and so on.

Recognising the undercurrents of hygiene and naturals, our Personal Care Products Business has successfully expanded its portfolio under the ‘Savlon’ and ‘Nimyle’ brands. To address evolving consumer preferences for guilt-free snacking, ITC has launched a delectable range of frozen snacks under the ITC Master Chef brand. A number of new categories have been incubated, including chocolates, coffee, beverages and dairy, among others. The strategy in building such new categories of the future is to first validate the concept and business model in select beachheads and then progressively scale up these segments, creating new vectors of growth for the future.

As I have mentioned earlier, business segments such as LifeStyle Retailing, which are incongruent to our growth plans, have been shrunk.

FMCG e-commerce contributed to 8 percent of sales in the June quarter. Can this increase? If yes, how? What’s happening on the digital front—on b2b and b2c e-commerce, and digital marketing? 

Recognising the rapid pace and evolution of technology in India, ITC is investing in cutting-edge digital technologies to shape a new paradigm of competitiveness, create innovative business models and leverage newer opportunities. ITC’s digital transformation is being built on a foundation of an agile ‘Digital First’ culture. Accelerated digitalisation is being pursued across the entire value-chain with significant focus on digital marketing, digital commerce, digital products and digital operations.

ITC has, over the last few years, strengthened its engagements in e-commerce. ITC also revamped its direct-to-consumer platform, ‘ITC e-Store’, reaching consumers in 15 metros. The ITC e-Store, currently comprising 800 products across 45+ categories, provides a single platform to showcase the wide array of ITC’s product portfolio. Powered by its ‘Sixth Sense’ Marketing Command Centre, ITC is ahead of the curve in digital marketing with focus on three core pillars, including content, commerce and community.

The company has leveraged relevant technology and digital platforms to deliver meaningful impact in consumer engagement and experience, product development and process efficiencies. ITC is also progressively introducing more ‘digital first’ brands such as Dermafique’ and ‘Fiama’ to leverage the growing e-commerce space. ITC’s digital platforms like the Mangaldeep App, with over 1 million downloads, as well as the first-of-its-kind ‘digital puja’ initiative during the pandemic have also received immense appreciation.

In addition, Classmateshop.com offers mass personalisation of notebook covers as a first-to-market digital initiative. To ensure last-mile connectivity for all our distributors and uninterrupted supply of products to consumers, we have also developed apps like UNNATI (eB2B App) and VIRU (Virtual Salesman App), which facilitate digital ordering and end-to-end trade engagements.

The pandemic wrecked India’s hospitality business. Has the situation changed for ITC? How would you cope with the changed situation? What is your strategy to address the issue of capital allocation?

The hospitality business, which was significantly impacted by the pandemic, had begun to witness a recovery. However, fresh restrictions following the new wave may cause further disruptions in the short term. For accelerated growth, we have adopted an asset right approach for the hospitality business wherein a large part of incremental room additions is expected to accrue through management contracts.

We have also renovated the Welcomhotel brand, and this portfolio of owned and managed properties will move up to 25 by the end of this year. The Business has also launched two new brands — ‘Storii’ for curated nature-based experiences and ‘Mementos’ which is a collection of unique luxury hotels across varied destinations. Already, four MOUs have been signed under the Storii brand and thee properties have been onboarded under Mementos.

Responding to the challenges and disruptions arising out of the pandemic, our Hotels Business has launched a host of curated offerings that will leverage and sweat existing assets besides augmenting new revenue streams. These include the introduction of innovative staycation packages and in-home dining offerings such as ‘Gourmet Couch’ and ‘Flavours’. Recently, the Business also piloted a signature ‘Sleeep Boutique’, leveraging extensive research to ensure superior experiences to discerning guests in this crucial area.

The business continues to leverage digital investments towards facilitating guest acquisition, enhancing the guest experience, augmenting revenue generation and driving operational efficiency.

What are the new levers of growth for your agri business? 

ITC, as you are aware, has a large footprint in the Indian agricultural space. Our deep engagement in the agricultural sector through the ITC e-Choupal, has led to the empowerment of over 4 million farmers. As part of the ITC Next strategy, ITC is pursuing accelerated value addition anchored on NextGeneration Agriculture to build yet another pillar of growth. The objective is to foster demand-responsive value chains, promote climate-smart agriculture and digitally empower farmers.

ITC is working with farmers to develop robust models for value-added segments, such as food-safe IPM Chillies, organic mango pulp traceable to farms, specialty coffee certified for fair trade, end-use-specific wheat flours, medicinal and aromatic plant extracts and so on. Going forward, the company proposes to foster inclusive agri value-chains through nearly 4,000 FPOs, benefiting around 10 million farmers across multiple crop clusters.

To bring the power of cutting-edge digital technologies to farmers, ITC will launch a Super App during the year, called ITC-MAARS — Metamarket for Advanced Agriculture and Rural Services. Accordingly, a new vertical has been created in the business. ITC-MAARS will offer a full complement of agricultural solutions while its micro-services structure will enable plug-ins by a range of agtech solutions.

This will be delivered through a robust ‘phygital’ ecosystem. Some pilots at scale on an integrated chilli value-chain initiated in Andhra Pradesh have validated the concept and benefited farmers with an additional income of 26 percent in the ongoing season.

ITC Infotech seems to have delivered a strong performance over the last couple of years. What are your strategic areas of focus for this business? 

We remain deeply committed to this business. The recent disruptions in digital technologies lend immense opportunities for agile players like ITC Infotech that possess domain-centric depth and capabilities. Living by its credo of offering business-friendly solutions, sharper focus is being provided in its chosen areas of specialisation such as Automation, Cloud-based Services, Digital Banking, Smart Manufacturing and Digital Workplace among others. The pillars of operational excellence and customer centricity have  led to an encouraging performance with the EBITDA margin growing from 8 percent to 25.2 percent from FY19 to FY21.

Can you elaborate on your plans for the Paperboards business? Is it easy to drive revenue and profitability?

Our Paperboards business has made significant progress in recent years with strategic investments in areas such as pulp import substitution, proactive capacity augmentation in the Value Added Paperboards segment where ITC is a distinct leader, as well as in decarbonisation of operations. As part of the ITC Next horizon, the focus is on three key vectors — value-added paperboards, where we are a distinct market leader, cutting-edge innovation in sustainable packaging to substitute single-use plastics, and investment in digital technologies like Industry 4.0, AI, ML and advanced analytics to drive process and operational efficiencies.

In sustainable packaging, the business has introduced an innovative portfolio comprising recyclable paperboards under the ‘FiloPack’ and ‘FiloServe’ series and biodegradable paperboards in the ‘OmegaBev’ and ‘OmegaBarr’ series.  The business is also developing antiviral and anti-microbial paper for applications in pharma and the education & stationery businesses, as well as moulded fibre-based products that are biodegradable and compostable.

Are investors happy with ITC’s performance? What is your broad message to investors? 

We are sharply focused on creating long-term sustained value for stakeholders, delivering superior performance and enhancing competitiveness of each business. During the three pre-pandemic years from FY17 to FY20, ITC’s EPS grew by 47 percent. Return on Segment Capital Employed has moved up from 61 percent in 2017 to 72 percent in 2020. A strategy reset with structural interventions has been put in place to sustain higher levels of competitiveness, growth and profitability.

As I have mentioned earlier in this interview, we are building an FMCG business at scale leveraging unique enterprise strengths, purposeful innovation, investments in digitalisation amongst others.

In other segments like Agriculture and Paperboards, we continue to strengthen our leadership position and build new levers of growth and competitiveness. Overall, the focus will continue to be on enabling sustained long-term value creation for shareholders.

We have embarked on an ambitious journey for the future and I am confident that the ‘ITC Next’ strategy will provide new wings to the company to make it even more agile, resilient, innovative and compassionate.