Our Ebitda share from non-cigarette biz at 27%: ITC CMD Sanjiv Puri

As part of the ITC Next strategy, we are making sure that the organisation remains agile, nimble and consumer-centric at all times

Tobacco-to-hotels major, ITC, is gearing up to deliver “competitively superior” performance across business segments despite multiple headwinds. In a wide-ranging interview ITC chairman and managing director, Sanjiv Puri, tells Ishita Ayan Dutt that the company aspires to be India’s largest FMCG company and hopes to expand margins by 100 bps each year. Edited excerpts:

ITC’s performance improved over the last 3-4 quarters. What are the broad strategies to keep the pace going?

We continue to experience robust growth across all our business segments. As the pandemic waned, the economy recovered well with timely actions by the government in terms of support to various sections of the economy, especially for people who were most distressed, and a slew of path-breaking reforms. All of this augur well for the nation and the economy demonstrated a fair bit of resilience.

As part of the ITC Next strategy — which is about the drivers for growth, profitability and competitiveness in the next horizon — we are making sure that the organisation remains agile, nimble and consumer-centric at all times. Digital, innovation, strategic cost management, sustainability and talent are the key facets we are focused on and are making good progress. The objective is to put in place structural foundations to sustain industry leading growth in each business. Every business faces headwinds or tailwinds from time to time and, of course, today we are in a world that is more volatile and uncertain than what it was. Currently, inflation is a key monitorable. But in any situation, we are focused on delivering competitively superior performance.

How do the numbers in Q2FY23 compare with pre-pandemic levels?

They are strong. We have seen robust growth across verticals and markets. While traditional business (cigarettes) is doing well, it is satisfying that our Ebitda from non-cigarettes businesses is now at 27 per cent of the total Ebitda and is 1.7x of what it was in Q2FY20.

The FMCG business has grown by about 50 per cent in the same time and our margins have expanded over 670 bps since FY17. Our businesses are growing faster than the industry and have also expanded margins sequentially despite steep inflation. All these are a result of structural interventions that have been put in place to strengthen each one of these businesses.

Given the external headwinds, what is the outlook on H2FY23?

There is some hope of moderation in inflation. Palm oil prices have cooled off a little, but prices of other commodities are still elevated. While the agricultural sector experienced a good monsoon, there has been some challenges of spatial distribution of rainfall as well as some increase in costs. Net-net because of higher realisations, it appears to be positive overall. On the back of this, the second half should be better in terms of consumption. We have been experiencing strong growth in the last few months in each of our businesses.

What is the impact of rupee depreciation?

Bulk of our sourcing is in India and we export more than what we import. So, it’s a positive for us. However, at a macro level, the issue is what it could potentially do to inflation and therefore consumption. But the worst as far as inflation is concerned, appears to be behind us. And there is hope for some moderation going forward. Organisations have to continue to be agile and innovative.

The Indian economy is on a good wicket but there are concerns on the global front. What impact it might have on the Indian economy, is something that we have to watch and monitor. The macros are such that predicting and forecasting is not so easy. 

You have been at the helm for three years. Where do you see ITC in the next 3-5 years?

The aspiration is to continue delivering competitively superior performance, best in class profitability and be at the top-end of the growth. In the FMCG segment, we would like to expand margins by 100 bps every year. In the short-term, the trajectory has got flattened because of severe inflationary pressures. We would like to see hotels growing much faster. The focus would also be on scaling up new business opportunities like food tech, ITCMAARS and sustainable packaging. The ITC of tomorrow will be a Future Tech enterprise with even stronger contribution to climate positive, sustainable and inclusive growth.

In hotels, the ARR and occupancy levels have gone past pre-pandemic levels. Is the timing now right for a demerger? 

I have spoken on this earlier and have said this is on the table. There is nothing more to add at the moment.

But given the operational synergies, does it actually make sense for ITC to demerge any of its businesses, including hotels?

How an enterprise organises itself has to be determined by what it takes to deliver sustained growth and profitability and be competitively superior. We have to look at the pros and cons of each situation and decide what is best to take the organisation forward and deliver sustained shareholder value. Enterprises exist not just for today, but for tomorrow and day after.

Would you consider listing ITC Infotech?

It is a possibility. The business has made good progress, but now there are certain areas where we need to build capacities and capabilities. Investments are being made in such areas.

You have picked up stake in D2C brands. But are bigger acquisitions in the offing?

If opportunities come in the consumer space, IT or any other areas related to our businesses, we will certainly look at it.

Reliance has set aggressive goals for an FMCG play. Will it prompt ITC to accelerate its pace of growth? 

We are living in a world of hyper-competition and companies have to be agile and continuously refine, retool and remodel business strategy wherever required. It’s a continuous and ongoing process for us which involves strengthening our portfolio and driving efficiency in our business models. 

Foods dominate your FMCG portfolio. Is that how it’s going to be?

Foods is the largest in our FMCG portfolio and will remain so. It is also the largest segment in the FMCG industry, and it is where our institutional strengths are leveraged the most whether it’s agri business or hotels. In terms of relative size, it will be a strong play for us.

In FMCG, we are going to build multiple vectors in foods, personal care, stationery and agarbattis because the aspiration is to be the largest FMCG player in the country.

It’s been about four years since you adopted the asset-right model in hotels. What is the ratio of owned to managed properties?

The ratio of owned-to-managed is about 50:50 now. Going forward, 70 per cent will be managed properties in the medium term. With our asset-right strategy, we are growing faster. Our target is to open one hotel a month.