ITC discusses demerger possibilities at first-ever investor meet

ITC chairman Sanjiv Puri doesn't rule out listing infotech business and said the board is open to creating value for non-cigarettes FMCG business

ITC has not ruled out the possibility of listing its infotech business and is open to seeing what is right to create value for the non-cigarettes FMCG business that has leveraged institutional synergies.

At ITC's first-ever institutional investors and financial analysts meeting, which was held virtually on Tuesday, Sanjiv Puri, chairman of the cigarette-to-hotel major, commented on the demerger possibilities for the FMCG business and listing infotech business. 

"ITC Infotech is a 100 per cent owned subsidiary and listing is certainly a possibility and these are issues that we examine from time to time," Puri told analysts, adding, "when it’s believed that it would be a good idea to do so and when it is felt that it is commensurate or material enough and when we feel it is worthwhile doing it in the interest of all stakeholders, I think, at that point of time certainly the board will consider that".

Puri also said these are areas that the company debates and looks at the context and the timing. "There is a context and timing to everything. And we have to approach it with an open mind," Puri added.

On the FMCG business, Puri told analysts the strategy right from the beginning has been to leverage institutional strengths and that is how the business has grown, that’s how it has evolved. "There are channel synergies, operational synergies, product development syngeries and commercial synergies at play," he said.

He also said there are many benefits that are available and it is not to say that FMCG businesses cannot be built without this. “We believe we should bring something unique to the table and that’s why we brought in the institutional synergies,” Puri said. 

However, he said that the company is open to seeing what is right to create value for shareholders and these are things it evaluates from time to time. 

“When we evaluate we certainly look at the maturity of the business, the business context and fundamentally look at what is required for sustained value creation because that’s a fundamental pillar,” he said. 

On hotels, he said, the plan to create an alternative structure for the hotels business has not been postponed for the long-term and will be done as the industry recovers.

The company will also spend Rs 3,000 crore per annum to expand its capacity over the next three years, taking its capacity expansion spends to Rs 10,000 crore. It will spend 25-40 per cent of its capacity expansion budget to add more lines and improve capabilities in the FMCG business and approximately 25-30 per cent of the amount will be used to expand capacities of its paperboards business. It will spend around 10 per cent of its capacity expansion on hotels for the next three years and it will then taper down its expansion as it is looking at an asset light model. 

ITC will also look at mergers and acquisitions in the the FMCG space, but only if it is value accretive. It will also not go ahead with expensive acquisitions. It is also open to M&A in its infotech business as it is an area of strong potential, added Puri.

Cigarette 

ITC said that the legal cigarette industry is impacted by a sharp increase in tax incidence over the years and India is the fourth largest illicit cigarette market. The company said that high cigarette taxation leads to surge in illicit cigarette market. ITC wants to maximise cigarette potential in the tobacco basket and counter illicit trade and continue reinforcing market standing. The trajectory of recovery of cigarette sales post the second Covid wave is faster compared to the first wave strengthening its market standing by over 100 bps over the last 18 months.

Under its Classic brand, four new variants launched over last 5 years contribute to approximately 25 per cent of the portfolio and under the Gold Flake Brand, new launches in the last 5 years account for 10 per cent of the portfolio. 

The company is expanding the premium modern variants and addressing emerging trends in the segment and reaches 140,000 markets, it said. 

FMCG 

FMCG’s growth pillars will be fortifying the core and addressing adjacencies leveraging its mother brands and building categories in the future. It said its ecommerce salience is 7 per cent. It is looking at new market routes like direct marketing, tying up with QSR chains, strategic partnerships, climate controlled supply chain and scaling up food services. ITC expects to grow in the top quartile and get to best in class margins in its categories. 

In its foods business, exports is a big area of focus, and its four brands are among the Top 20 trusted food brands in India. Its food brands are present in 5.63 million stores across the country. It also said that it has 26 per cent market share in the premium biscuit segment. 

In the personal care category, it is witnessing 14 per cent  contribution come from ecommerce and has a direct to consumer reach through Dermafique and Mother Sparsh.

Other business areas

In the agri business, ITC is focused on processing and value added products. Its value added products will drive growth and margins. While, in its paper and paper board business it said that it is the market leader in scale, profitability and sustainability. In the hotels business, it is exploring the take away option aggressively to increase revenue. 

The company also told analysts that around 41 per cent of ITC energy is from renewable sources. Under sustainability 2.0, it will have 50 per cent of energy from renewable sources by 2030. 

ITC next strategy 

• Driving scale and profitability
• Top notch ESG credentials
• Strategy of organisation redefined to sharpen consumer centricity, agility & focus
• Engaged and motivated world-class talent pool driven by a 'proneural' spirit