We will continue to actively look for acquisitions: ITC CMD Sanjiv Puri

In a Q&A, he says that with vaccination picking up pace, consumers will gain confidence and the economy will recover progressively

The second wave of the Covid-19 pandemic has hit business sentiment, but ITC chairman and managing director, Sanjiv Puri, says that with vaccination picking up pace, consumers will gain confidence and the economy will recover progressively. In an interview to Ishita Ayan Dutt, he says that certain business segments of the company were impacted by the pandemic last year, but recovered in the second half and revenues from the non-cigarettes FMCG business – created organically and inorganically– grew 16 per cent  on a comparable basis in FY21, which is nearly twice that of the industry peer group average. Edited excerpts:

Q. The second wave of Covid has hit the hinterland impacting rural demand. Will it affect the pace of recovery?

The second wave impacted sentiments quite severely, both in rural and urban centres.  There has been a surge in cases in rural India this time and therefore rural sentiment has been under some pressure too. So, there may be a tendency to conserve. However, monsoons are expected to be good and given the fact that most manufacturing did not shut down this time, the loss of non-agricultural income could be lower than that of last year. With the pace of vaccination increasing, case-loads coming down and increasing mobility, consumers will increasingly gain more confidence and the economy will progressively recover.

Q. Your non-cigarettes FMCG revenues and margins were higher year-on-year in Q4, but lower sequentially. How would you address investors’ concerns on that front?

                       

We are clearly investing for sustained profitable growth. Following a strategic review of the portfolio, the lifestyle retailing business has been shrunk. The FMCG product portfolio has been strengthened. The foods business has been reorganised into clusters to enable a sharper focus. In addition, purposeful innovation, multi-channel growth engines, scaling up market reach and digitization are enhancing competitiveness. The interventions are evident in the FMCG margins which have gone up by 640 bps in the last four years.

It would be more appropriate to compare performance on a year-on-year basis.  Even in Q4, FMCG margins were up by 115 bps YoY, keeping aside the education and stationery products business (which was impacted on account of schools remaining closed and the seasonal nature of the business), lifestyle retailing business (restructuring underway), and Sunrise (acquired during the year). In FY21, ITC FMCG revenue grew by 16 per cent on a comparable basis, which is nearly double that of the industry peer group average.

Q. You acquired Sunrise last year, are more acquisitions in the offing?

The bulk of our FMCG portfolio across categories has been created organically. I am not aware of any company that has created such a vast portfolio in this relatively short span of time. Having said that, we will continue to actively look for value accretive inorganic opportunities. We acquired Sunrise last year; and there have been others in the past few years, including Savlon and Nimyle, which have grown manifold since their acquisition.  

Q, ITC is exploring an “alternative structure” for hotels. Is it a demerger and is the pandemic delaying it?

Given the pandemic, this will have to be revisited and a final decision will be taken once the situation normalises.

Q. Your investment cycle in hotels and ICMLs (integrated consumer goods manufacturing and logistics facilities) is coming to an end. What would be the focus areas for capital allocation?

We have adopted an asset right strategy for the hotels business, which is making appreciable progress with healthy generation of leads and pipeline for management contracts. We have progressively invested in a number of ICMLs in the first phase and any further expansion will be paced out over time.  However, investments across segments will continue towards capacity gearing in line with demand, technology upgradation and cost reduction to strengthen competitiveness and accelerate growth.

Q. ITC is a rare blue chip stock that is still trading at 2013-levels when benchmark indices have gone up sharply. What would be your broad message to investors who are a worried lot?

We are sharply focused on creating long term sustained value for stakeholders. During the 3 years from FY17 to FY20, ITC’s EPS grew by 47 per cent.  Return on segment capital employed has moved up from 61 per cent in 2017 to 72 per cent in 2020.

Last year, some business segments were impacted on account of the pandemic, but they recovered in the second half. A number of structural interventions have been made to sustain higher levels of competitiveness, growth and profitability.

We are building an FMCG business at scale leveraging unique enterprise strengths, purposeful innovation, investments in digitalisation amongst others. In other segments like agriculture and paperboards, we continue to strengthen our leadership position and build new levers of growth and competitiveness.

In agri business, we are actively accelerating value-added agricultural products, whilst in paperboards, sustainable and plastic substitute packaging solutions will be a new vector of growth. Going forward, we will continue to explore more opportunities that lie at the intersection of our unique enterprise strengths, sustainability and digital.