Back in the 1950s, a young engineer from a public sector background joined what was then called the Imperial Tobacco Company, and was assigned to its Munger factory in Bihar. His dipsomaniac boss drank whisky all day; so, when a visiting director from Kolkata invited the young engineer to Sunday lunch and asked him what he would have for a drink, back came the answer: “Whisky!” The director looked at the young man strangely, because new recruits to the managerial cadre at Imperial Tobacco were supposed to be up on the social graces, not ask for the wrong drink at the wrong time of day.
It is a testament to how much the company changed over the succeeding decades that that same young engineer went on to become the company chairman. His name: KL Chugh. Indeed, few companies in the country have transformed themselves as successfully as ITC, the company once known as Imperial Tobacco Company, which celebrated its centenary earlier this week.
In the 1970s, the company renamed itself Indian Tobacco Company, to reflect the Indianisation of its shareholding (as a new law demanded), and then became ITC as it tried to build a series of non-tobacco businesses—not all of them successfully. One thing hasn’t changed though: the company remains stubbornly headquartered in Kolkata, unlike other foreign-born companies like Brooke Bond, ICI and Lipton that moved out long ago.
Also, unlike once storied corporate names in the city, like Gillanders Arbuthnot and Bird-Heilgers, which have fallen off the map, ITC remains one of the star performers in India’s corporate firmament. Its market capitalisation now tops Rs 100,000 crore, and the company has seen something like 10-fold growth over the past decade, a period during which it has given much better returns to shareholders than that other producer of fast-moving consumer goods, Hindustan Unilever, with which it is frequently compared.
From the early days, Imperial Tobacco was a pioneer; it introduced mass-produced cigarettes to India, and also high-quality Virginia tobacco. It set up a leaf development company, to encourage the cultivation of tobacco, and quickly became the market leader in its line of business—though then, as now, the bulk of tobacco consumption was in the form of home-grown bidis and chewing tobacco.
The story became interesting when the government told foreign-owned companies that they would have to Indianise their shareholding, and when large “monopoly” firms were told that they could expand only in specified industries, like fisheries and garments for export markets (since earning foreign exchange was a national priority). Imperial Tobacco, for the first time under an Indian chairman (the pioneering Ajit Haksar), quickly adapted to the new era and shed its imperial baggage.
But when a bunch of club-going cigarette marketers turns its attention to the fisheries or shirts business, as the renamed I.T.C. (the full-stops were removed only in 2001) did, it is likely to make a hash of things. These and quite a few other enterprises proved short-lived, some even featuring in occasional scandal; and so it was that the company shut down its international trading arm, sold its low-margin edible oils business and shut down a financial services subsidiary that had become an embarrassment. But two other diversifications were spectacular successes: the Welcomgroup hotel chain, now perhaps the largest luxury chain in India, and Bhadrachalam Paperboards—also an industry leader.
The crisis years—and every large company has such a phase in its history—were probably from the mid-1980s to the mid-1990s. First, the company got embroiled in a major excise evasion case, till then the biggest in the country, with the sum involved exceeding Rs 800 crore—large enough to bankrupt the firm at that point. The original sin was a tax system that put such high excise duties on cigarettes (but not on other tobacco products) that the government was literally asking for tax-avoidance schemes, which ITC and other cigarette companies felt obliged to invent in order to stay alive in the business. But one man’s avoidance is another man’s evasion, and the matter was eventually settled after many years, with part-payment despite court victories.
The even bigger crisis came in the midst of a dispute with the company’s British promoter, the British America Tobacco Company (or BAT). BAT had passed up the chance to contribute to ITC share issues when it saw dim business prospects in India, but now wanted to up its stake in the company and wrest active control while also pushing its international cigarette brands through the ITC distribution machine. The fight with desi managers who wanted to keep the company Indian got dirty when some questionable foreign exchange deals were unearthed; the chairman and a past-chairman were among those arrested. It was fortuitous that Yogi Deveshwar, then vice-chairman, had been out of the company (as chairman of Air-India) when the deals were done.
Taking charge as chairman when the tax case was still alive, the fight with the British shareholders (who held over 30 per cent of the company) very much on, and the company’s name tarnished by the scandals, Deveshwar had to deal with multiple crises. In the next few years, he secured his position while yielding no ground to BAT, settled the tax case after some court victories, wound up ITC Classic Finance at substantial cost, and set about refurbishing the company’s tarnished public image even as he began diversifying with a vengeance to reduce the dependence on the sin business of tobacco (Deveshwar himself gave up smoking!).
Now the company’s longest-serving chairman, Deveshwar has repeatedly stressed the company’s environmental record as a green company, and established a triple-bottom line objective (offering financial, environmental and social returns) while also making the company carbon-neutral and water-positive. Among other diversifications, he has moved aggressively into a core Unilever territory like foods, and notched up a Harvard Business School case study with his e-choupal rural marketing initiative. But the company remains fundamentally dependent on the cigarette division for most of its profits, and in that sense the task of transforming the company that began 100 years ago as Imperial Tobacco remains an unfinished one.
