Deveshwar: ITC's longest-serving chairman with a lifetime of achievements

Y C Deveshwar, who diversified ITC beyond tobacco, is winner of BS Lifetime achievement award 2016

Name change for ITC has been a part of its metamorphosis. Till 1948, it was Imperial Tobacco Company. In 1969, the company got its first Indian chairman, Ajit Narain Haksar, and the ‘Imperial’ in the company’s name became India and in 1974, it became plain ITC. But for the company’s longest-serving chairman, Yogesh Chander Deveshwar, ITC means India’s Trademarks Corporation.
 
In February 2017, Deveshwar stepped down from his executive role and will continue to be ITC’s non-executive chairman. Sanjiv Puri was appointed chief executive officer.
 
After graduating in mechanical engineering from the Indian Institute of Technology, Delhi, Deveshwar joined ITC in 1968, and became chairman and CEO in 1996. In a stint spanning more than two decades as CEO, Deveshwar grew the company’s net revenues nearly 15-fold to Rs 36,475 crore, and its profit after tax 37 times to Rs 9,845 crore; total shareholder returns grew at a compounded annual rate of 23.3 per cent between 1995-96 and 2015-16. From fewer than a hundred SKUs in 1996, the distribution highway now handles over 1,500 SKUs of multiple businesses, directly servicing over two million retail outlets across trade channels in 100,000 markets.

 

But that’s the ITC story in numbers. Deveshwar’s biggest achievement is that the ITC of today is more than just a cigarette maker. The company is now not just defined by its cigarette brands — India Kings, Classic and Goldflake; it is also identified by Sunfeast (cookies and biscuits), Bingo! (snacks) and Aashirvaad (staples and ready meals). The new FMCG businesses, nurtured over the last decade or so, have crafted a portfolio of 25 mother brands, commanding a consumer spend of more than Rs 12,000 crore.
 
The Aashirvaad brand has crossed the Rs 3,000 crore mark, Sunfeast is valued at over Rs 2,500 crore while Bingo!, Classmate and Yippee have exceeded Rs 1,000 crore each.

 
As Deveshwar said at his last annual general meeting in the joint capacity of chairman and CEO, “Compared to the size of ITC in 1996, the non-cigarette businesses alone represent a size akin to creating five ITCs of that time.”
 
ITC’s non-cigarettes businesses have grown seventeen-fold in the last two decades and registered a net segment revenue of Rs 23,000 crore. The share of cigarettes in the total revenue earned has steadily been coming down too — from 56 per cent in 2012-13 to 42 per cent in 2015-16. Financial analysts grumble that the non-cigarettes businesses don’t enjoy the profitability of the cigarettes business. Maybe so, but it is in sync with Deveshwar’s philosophy of “building for the future”.

 
But perhaps Deveshwar’s pride is neither in growing the non-cigarettes business, nor in creating Rs 1,000 crore-plus brands. It’s in creating world-class Indian brands. Deveshwar has always lamented that Rs 50,000-60,000 crore go out of the country in terms of royalties every year, and has even gone to the extent of congratulating Indian brands like Patanjali, which have made a mark.
 
“India First”, “Country before Corporation” and such mottos have since grown to aspirational levels. Deveshwar pioneered sustainability and ITC became one of the first companies to make triple bottom line performance — financial, social and environmental — a core purpose of its business strategy.

 
It wasn’t easy getting where ITC is right now in the non-cigarettes business. Diversification, per se, wasn’t new for ITC. Since the late 1960s, which is when Deveshwar had joined ITC, almost every ITC chairman has tried his hand at diversification. The only years that Deveshwar was missing from ITC was between 1991 and 1994, when he led Air India as chairman and managing director. And by the time Deveshwar took charge of ITC in 1996, most of its diversification initiatives had either failed, or were faltering.
 
So, Ajit Narain Haksar had opened ITC’s first hotel in Chennai, the ITC Welcomgroup Hotel Chola, in 1975, followed by an entry into the paperboards business. Jagdish Narain Sapru led the foray into financial services and took the iconic Bukhara restaurant to New York, apart from setting up the edible oils business, ITC Agro Tech. Krishan Lal Chugh set up the trading company, ITC Global Holdings Pte, but his stint was more memorable for a public spat with the British multinational, British American Tobacco (the single largest shareholder in ITC), over a foray into the power business, which the multinational had blocked. BAT had even tried to take control of ITC, but that didn’t work out.

 
The biggest challenge for Deveshwar, however, was to restore the reputation of the storied Virginia House, corporate headquarters of ITC, tattered by an investigation by the enforcement authorities under the Foreign Exchange Regulations Act, against 14 members of the then current and past management, including two chairmen. A retrospective excise demand of Rs 803 crore, amounting to three times the annual profit of ITC at the time, was made on the very first day that Deveshwar took charge.
 
The challenge, as Deveshwar told shareholders recently, was to steady the ship first and articulate a “superordinate” vision for the company. And this he proceeded to do very effectively.

 
Much to the displeasure of BAT, Deveshwar stuck to the diversification script even though there were exits from financial services, edible oils and overseas restaurants. Non-cigarette FMCG, hotels and information technology were identified as the new areas of growth.
 
From 12 hotels in 1996, ITC has grown to over 100 properties across four brands — ITC Hotels, WelcomHotels, Fortune and WelcomHeritage. There’s a lot more coming in the hotels space: 10 owned hotels are in various stages of construction in the luxury and five-star segment, while 30 owned/managed hotels are on the drawing board in the mid-market to upscale segment. And this at a time when most peers have gone the asset-light way. The mantra, here too, is to look at the long-term.

 
In 2000, ITC launched its most awarded initiative, the e-choupal. Always dreaming big, Deveshwar wanted to do a Walmart with e-choupals, leveraging the internet to empower small and marginal farmers by linking them directly with buyers. Though constrained by regulations, it has worked wonders for the foods business, which is ITC’s biggest success in the non-cigarettes FMCG segment. In foods, ITC is at number three with revenues of Rs 7,100 crore, but in the next couple of years, it’s eyeing the top slot.
 
But that’s part of a bigger target to grow the non-cigarettes FMCG business to Rs 100,000 crore by 2030. The basket of non-cigarettes FMCG products is therefore constantly expanding. The latest entrants are Sunfresh (dairy whitener) and, at the premium end, Fabelle (chocolates) and Sunbean (coffee). But Fabelle made many rounds to the ITC board before it was finally approved — the idea again was to come up with a world-class product.

 
The goalposts have, therefore, been moved by Deveshwar for his successor Sanjiv Puri. The aim now is to make ITC a multinational corporation.
 
As Deveshwar said at the last AGM as CEO, “If we can build Indian companies to be globally competitive, nothing like it. Indian companies can become multinational companies (MNCs). That is our aspiration, making ITC one such MNC.” While Puri will be the person to make it happen, Deveshwar, ITC’s longest-serving chairman, will continue to be the guiding force.