It has been three years since you became President and CEO of ITC. How was the trip so far?
The primary objective has always been to ensure sustainable value creation for all stakeholders. The journey over the past three or four years has been to structure the structural drivers of the next horizon of growth and value creation. The strategy reset I focused on is to ensure the organization remains contemporary, future-ready, and extremely consumer-centric and agile. New growth vectors have been established in all segments and investments are stepping up to structurally support competitiveness. There has been a substantial increase in digital investment and agile, focused innovation. We have developed a bold sustainability 2.0 agenda to better rebuild and meet the challenges of climate change and the pandemic.
In recent years, attention has increased on consumer products. What was your vision for this company?
It is the youngest company in our portfolio and also the most promising. The FMCG product portfolio has been strengthened based on new trends and opportunities and the strengths of our company. The focus is more on strengthening the existing core, resolving adjacencies across parent brands, and creating the new core for the future. We have reorganized our structure in the food sector into clusters with empowered and integrated teams. Focused innovation, multi-channel distribution networks and digitization, among others, have been accelerated to drive growth and efficiency. From a turnover of around Rs 10,500 crore in FY17, our FMCG activity has now grown to nearly Rs 15,000 crore. EBIDTA’s margins improved by 640 basis points between FY17 and FY20. In FY21, ITC’s FMCG sales increased 16% on a like-for-like basis, nearly double the industry average. This excludes our acquisition of Sunrise and segments such as education and stationery as the schools remained closed. Over 75 percent of our portfolio has grown by 20 percent.
Are you looking to unblock any segment or separate those that are slowly growing and affecting your market valuation?
We have a strong focus on creating long-term value for stakeholders. In the three years from FY17 to FY20, ITC’s EPS (earnings per share) increased by 47%. The return on capital employed in the segment increased from 61 percent in FY17 to 72 percent in FY20. A more refined capital allocation policy has been articulated and annual distributions of dividends were accelerated.
At one point, hotels and cardboard were separate businesses, we created them for a purpose, and those businesses acquired size and market position over time. We have already adopted an “asset right” growth strategy for hotels in order to reduce capital intensity. In our annual report for fiscal 2020, we announced that we were exploring alternative structures for our hotel business. But at the moment there is a destruction of demand in the segment. We will continue to look at other structures. A business exists for stakeholders not only for today, but also for tomorrow. It must provide them with lasting added value. We have to recognize it.
ITC stock prices have been stagnating for some time, is this a problem? Analysts believe unlocking is the only solution …
The role of management is to create sustainable value for stakeholders, and this is what ITC is focused on. We continue to create new growth vectors and redouble our efforts to progress faster.
We are aware that there are concerns from an ESG investment perspective (environment, social and corporate governance). However, it is well known that ITC has achieved the best ESG scores from global rating companies. As the dynamics of ESG investment shift more and more towards a more holistic “integration” approach, we are convinced that our references in this area will be very useful to us. Last year, due to the pandemic, there was an impact on demand in some segments. This affected our EPS last year, but the good thing is that Q4 saw a sizable rally.
Analysts believe that you are in too many categories in the FMCG industry and that there is a lack of focus. You don’t have a market leading position in many categories. What is your opinion ?
ITC achieved leadership in several operating segments in a relatively short period of time. I don’t know of any other organization that has created a brand portfolio with consumer spending of Rs 22,000 crore in such a short time. Aashirvaad is the leader of the attack market, Classmate is the leader of the notebook segment, Bingo! is No. 1 in the “bridge” segment, while YiPPee! is a strong # 2 in instant noodles. When we launched YiPPee !, it was a 90:10 market. Today, we are almost a quarter of the market. The idea is to achieve leadership and that is what we are pursuing. Market share requires sustained investment and continuous innovation. We are also making progress in many other segments. For example, Savlon pioneered consumer-centric innovations during the pandemic and has consumer spending of almost Rs 1,200 crore. We are also creating the “new core” of consumer goods such as chocolates, coffee, dairy products and beverages among others, and therefore brands such as Fabelle, Sunbean, Aashirvaad Svasti and B Natural are being developed with a lot care. The idea is not necessarily to make all the categories evolve at the same time. We will gradually increase as we validate the concept or business model in certain markets.