WHEN ITC chairman Sanjiv Puri took charge of the diversified conglomerate in 2019, he had the humongous task of reducing the company’s dependence on the tobacco business, which contributed significant part of the revenue. Moreover, the market wanted ITC to unlock value by demerging its hotel business. Despite all its engines (FMCG, Paperboards, Agri and Hotel) growing impressively, the valuations were impacted. The anti-tobacco drive and increased focus on sustainability made investors shy away from ITC despite its ESG scores being one of the best globally.
Initially, Puri remained non-committal about unlocking value. Finally, in August 2023, he announced the much-awaited demerger of the hotels business and secured shareholder approval by June 2024. Once demerged, the parent entity would hold 40% of the business, while the remaining 60% would be with shareholders.
Since May this year, Puri has also donned the hat of CII president, shuttling between the industry chamber’s headquarter in Delhi and ITC’s headquarters in Kolkata. But despite the hectic schedule, Puri looks calm and happy, though he attributes it to morning yoga and meditation, which he seldom misses. But he’s also not being asked the perennial question about ITC’s stock price, which has spiraled 86% since the demerger. The last 24 months have also seen the opening of 32 hotels, including new formats such as Storii and Mementos by ITC Hotels.
“The fundamental role of management is to create sustained value for stakeholders. It’s for the market to look at valuations. In business, we look at how mature it is, and the competitive and opportunities landscape. Based on these factors, one looks at the business strategy and it leads you to take a decision on the strategy of an organisation. As far as hotels are concerned, it has matured, has iconic properties, iconic cuisines, and has developed a standing for itself. Once the demerger happens it will be an entity with a strong balance sheet, debt free, with ₹10,000 crore in assets,” says Puri.
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The hotel business, he says, has shown immense traction in the past few months and time is just right to create a pure-play hospitality business that could chart out its own growth trajectory. “It (demerger) gives shareholders ownership in ITC hotels, directly and indirectly. ITC retains 40% so we can continue to leverage enterprise synergies. What it would also do is boost the capital productivity ratio up to 2,000 bps. It’s a win-win for everybody.”
Providing economic returns to shareholders is important, but it is also imperative to ensure that stakeholders (consumers, employees, farmers, distributors and communities the company operates in) get value out of businesses. “The actions we have taken lead us to believe that we are contemporary, well prepared for the future. If I am future-ready today, it doesn’t mean I am future-ready forever. Every year you have to add an extra layer to be future-ready, because things continuously change,” points out Puri.
The conglomerate with ₹76,275 crore in gross sales has recorded a CAGR of 12.8% during FY21-2024. The FMCG business is worth ₹32,500 crore (in consumer spends). and the company’s ‘non-sin’ business now comprises around 67% of total revenue.
ITC Next
It was in 2018 that Puri first articulated the ITC Next strategy. The idea was to identify future-proof vectors across its FMCG, agri, paperboards and hotels businesses by keeping consumers and stakeholders at the centre. “We first made the organisation nimble and consumer centric, which led us to change our strategy. We created empowered teams and gave them full ownership of business outcomes and access to resources. That led to changes in food and agri businesses. In food we created four verticals, in agriculture we created a separate vertical for value-added agriculture because we wanted to provide specific thrust on it,” he explains.
In every business, the company not just strengthened the core but also identified adjacencies and categories for the future. “In paperboards, for instance, our core is value-added paperboard, which we continue to fortify. The first adjacency we got into was plastic substitution. That led us to create plastic substitutes on paperboards with proprietary coatings. When we looked at creating additional new vectors, we ventured into creating complex engineered plant-based moulded fibre products.”
Similarly, in food, the company is focusing on verticals such as staples, frozen foods, biscuits & cakes, snacks, chocolate & desserts and dairy and beverages — clearly a strategy of premiumisation. Puri, however, clarifies that the premiumisation strategy in FMCG is not because of a slowdown in volume growth, but due to an increase in aspirations of the average Indian consumer. “We do have an elaborate mass portfolio across categories,” he says. But it is the frozen food category which is growing fastest. From onion rings and burger patties to paneer pakoras and aloo paratha, technology keeps the products fresher than what is available in the market, says Puri.
Puri’s premiumisation focus also includes categories such as health, hygiene and convenience. “Some of these are trends and some undercurrents, but all of these will become mega trends one day. Premium healthy snacking is an opportunity, and that’s where Yoga Bar fits in. Consumers are also looking at healthier options such as organic or millets or sugar control release atta. We have launched Right Shift, a portfolio of products for 45 plus age group which includes jaggery cookies and breakfast items like millet oats upma, millet masala oats and snacking items among others.”
Being a late entrant in food and personal care, the focus on premiumisation made more sense. “It is always tough to get into a competitive area. You have to play with a challenger mindset, and bring something unique to the table. You need to have patience and capacity to invest,” Puri explains.
ITC’s farmer network is one of the oldest and strongest. It not only sources wheat, vegetables and fruits for its food business, but also has robust trading operations. However, the vector of the future is value-added agriculture. “It is to do with the type of crops we deal with, their attributes and processing,” says Puri. The company is developing medicinal and aromatic plants on a 110 acre farm in Sehore, Madhya Pradesh. “Farmers grow medicinal plants and we buy them back. So, apart from buying back and selling it, we are getting into processing and then we will get into proprietary products. We are looking at the full value chain. Instead of just looking at wheat, we will also focus on high gluten and high protein wheat. It will be more attribute-specific.”
The other area of focus is climate smart agriculture, and Puri claims the company has already done so across 2.9 million acres of land. It’s a package of practices that makes a crop more resilient to changes in extreme weather events. According to an internal study by ITC, 70% of villages moved into a high-resilience, high-yield category, the first phase. GHG emissions of select crops have reduced by up to 66% while net returns for farmers have increased upto 90%.”
Tech-enabled
In climate smart agriculture, ITC uses AI-enabled models that predict possible disruptions. “We have undertaken climate risk modelling ,using advanced AI models across 140 sites in agri value chains, and based on decadal forecasts available through various agencies we have tried to forecast the risks at each site and across the value chain. Now we are taking mitigating steps. We cluster them on the basis of temperature, heat, stress and for each cluster design the solutions,” says Puri.
Technology is a way of life for businesses at ITC. The company has a listening engine, Sixth Sense, which listens to social conversations and picks up not just consumption trends, but concerns as well. The data is used as inputs for creating products. If you happen to shop for gourmet chocolates at the Fabelle store in one of the ITC hotel’s, or if you are a regular at its D2C (direct to consumer platform) platform, ITC Store, or if you have participated in some of the consumer promos on its website, the data of all these interactions would go into its centralised customer data hub. It is the data repository which helps in creating consumer cohorts that target ads more efficiently. By using analytic tools the customer hub analyses buying habits.
The company has also been using technology to build competitiveness. “We are talking about purposeful and agile innovation because the speed of getting to the market is important. The only way to do it is take bets on certain platforms and create them, so you see the consumer opportunity,” says Puri.
Unlocking Value
Is a demerger of the paperboards business also on the cards? Puri stays non-committal. “As far as other areas are concerned, the principles are the same. It is about sustained value creation, looking at the competitive context. This is an ongoing exercise, and we review this from time to time, analyse the pluses and minuses, and pursue whichever strategy is a better fit.”
ITC’s hotel business has grown 15.6% in the past year and Puri’s vision post demerger is to take its ethos around responsible luxury to newer heights. “ITC Hotels and Welcomhotels achieved, much ahead of time, the 2030 carbon emission targets envisaged in the COP21 Paris agreement. Sustainability is a competitive edge for us which will get stronger with time.”
Besides launching newer formats, ITC looks for international expansion. It recently launched its first property in Sri Lanka and will soon enter Nepal. “We will be more focused on markets that are nearer and then go beyond.”
Puri’s vision is to build an ITC that would stand the test of time on the four pillars of growth: Innovation, technology, resilience and agility.