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| Edited By: Ashish K Tiwari |Source: DNA |Updated: Sep 18, 2017, 07:15 AM IST
Diversified conglomerate ITC has over the last two decades worked closely with farmers while also taking other initiatives to build a socially responsible business. Initiatives like e-Choupal, watersheds, cattle rearing and programmes for the upliftment of people in rural India have not only helped it build trust and ground-level connect with the farming community but also created a strong back-end for a host of its tobacco and non-tobacco businesses like agri, paper and paper boards and fast moving consumer goods (FMCG). At a recently organised media meet in New Delhi, Sanjiv Puri, executive director and chief executive officer, ITC Ltd, spoke about the company's businesses, focus areas, investments and the way forward. Ashish K Tiwari reports.
Our business is basically categorised as tobacco and non-tobacco. Under the latter, there are five verticals - fast moving consumer goods (FMCG), hotels, paper and paperboards, agri-business and information technology (IT). The non-tobacco businesses contribute 58% to ITC's overall revenues of over Rs 55,000 crore. It's the diversification that we are driving hard, which is evident from the fact that nearly 80% of our capital employed and close to 90% of our employees are in non-tobacco businesses. The approach is to take an integrated view of value creation across the triple bottom line viz. economic, societal and environmental, that we committed ourselves to. Agri is a very large business segment for us and it is as large as the paper business. The financial matrix is equally impressive but what I want to say more here is that it's a pioneer in rural transformation. We have e-Choupal that has anchored and empowered four million farmers. The idea is, over time as we are getting to the next generation of e-Choupal, we will try and bring more farmers, in fact, double the current number. Our foray into fruits, vegetables and sea food will enable us to provide this empowerment to a larger number of people in the country. We pioneered building green hotels and are among leading hotel chains in India with over 100 hotels across categories. Despite being the youngest we are the fastest growing hospitality company and have, over a period of time, created some iconic properties. We are today constructing 10 hotels -- nine in India and one in Colombo. Our whole premise in hotels is around having an asset-right strategy. While we currently have a mix of owned and managed hotels, eventually the focus will be on managed hotels. Currently, the third largest foods company in India, we have 25 mother brands with a consumer spend of Rs 14,000 crore. There are some segments where we are leaders and there are others where we are either number two or number three. For instance, Aashirvaad is a Rs 3,500-crore brand, Sunfeast is a Rs 3,000-crore brand, Classmate is a Rs 1,000-crore brand. We also have brands like Engage (perfume) and Yippee! Noodles which are the number two player. Information Technology (IT) is again a very young business but that is differentiated around the domain expertise it draws from various verticals of ITC. The digital space is going through a lot of stress and I think the biggest challenge is the disruption of digital technologies getting mainstream now. It’s an opportunity for younger players. We have built this business over time and I think now we have the opportunity take it to the next level. So this is where we are as an enterprise.
We have for sure taken the path of diversification over a period of time. On the tobacco business, we believe ceding ground to smuggling/illicit trade, which has become a big menace in the country, is neither in our stakeholders' interest nor the interest of the nation. Almost one-fifth of the cigarettes today are smuggled. In the last three years, as taxes have gone up by over 200%, the legal industry in India has lost 25% volume. Illicit has grown from 11 billion sticks to 25 billion sticks during the same period, eating into the volumes of legal trade. If you look at the figures, tobacco consumption has only increased in India. Just that it has shifted to either illegal cigarettes or to other forms of tobacco. That’s the major concern we have.
What we are saying is that regulation should not be discriminatory to the cigarette industry, which is just 11% of the tobacco consumption, and accounts for 87% of the revenues. Regulation should not be such that it ends up becoming a challenge to the domestic industry, whereas smuggling thrives. We have 85% pictorial warnings on packets. Research has recently shown that consumers prefer packs without the warning and they are getting it because smuggled packs have come. In the United States of America, there is no pictorial warning. Even the text warning is on the side panel. Countries like China, Japan and the US, which account for 50% of the cigarette consumption in the world, do not have pictorial warnings. In the end what happens is the Indian farmers lose, the government loses revenue and the Indian manufacturers lose. The consumers also suffer because when you are buying an illicit product, you are never sure where it is coming from and the quality standards are also questionable. Smuggled cigarettes do not use Indian tobacco and in a way, we are exporting jobs. So the point that we are trying to make here is that it does not serve any purpose for the legal industry to cede ground to the illicit trade and for the farmers to lose their livelihood.
I don’t see that happening. The idea to invest in newer businesses is not with the perspective that we will divest in earlier businesses. It is neither in the interest of stakeholders nor is it in the interest of the country.
Our focus will be to build world-class Indian brands or services that we already have while also creating fresh ones. I am using the word 'world-class' Indian brands because the whole idea is to put 'India First' by creating, capturing and retaining value in India. We are going to be doing this with existing brands as well as entering newer categories. In the recent past, we have got into juices, dairy, sea food, blended spices and will soon foray into the fresh fruits and vegetables segment. Going forward we are getting more categories and expanding offerings in existing categories. And we will continue to bring to the consumers products or services that are superior, very distinct or differentiated or first time to the market. And to deliver that, there will be continued investment in research and development; we will continue with our innovation engine and we will continue to invest in building greater capacity in line with our requirement. Additionally, we are working on strengthening the last mile of the distribution mechanism whether it’s for hotels or distribution of our FMCG products through trade marketing and distribution. And to be future-ready we are also investing in industry 4.0 technologies so that we bring in greater efficiency and greater productivity to be able to leverage this for greater consumer/customer connect.
We will be investing significantly in creating the physical infrastructure to enhance our competitiveness. We currently have 65 projects at various stages of development with an investment of Rs 25,000 crore. Some significant sectors include getting 20 integrated consumer goods manufacturing and logistics hubs to provide scalability at the lowest cost of delivery and the capacity to provide to consumers the freshest products. There are three such facilities already operational, and in the next three months or so we will have two more coming up. In fact, within the next year or so we will have a few more facilities getting operational.
It is still work-in-progress as we are in the process of assembling the team. What chairman had said during the annual general meeting was that we want to make a difference to healthcare and we want to bring in a system that will be patient-centric, driven by the patient’s well-being at the core. Initial thoughts are that we’ll have a multi-specialty hospital which will have all the infrastructure etc. Once we get everything perfect and really world-class, then we will see how to take the next steps.
Where there is synergy with what we are doing – and synergies are important because it's only then that we can add value to it – we are certainly open to it. And there is some piece of it happening already in our IT business.
No plans at this moment but I can tell you we continuously explore newer categories and if we believe we have an idea that we can bring in, we will take it to the market. Development activity is happening in many many areas. So you cannot do all of this with a specific proposal to enter and so on. Only when we have a winning proposition that we really get in. We have teams exploring newer areas; that’s how we get into newer categories every time. There is no plan at the moment but you never know.
It comes from two objectives; one is on the agri side - We want to move into more value-added crops from farmers’ perspective like fruits, vegetables, perishables, medicinal aromatics plants. In fact, farmers' incomes may go up three times or even more ones the scales are there. And it’s a large market globally so there is an opportunity and India has the capacity and the agro-climatic conditions to produce that. We have taken a 110-acre farm in Sehore (Bhopal) where the pilot trials and demonstration are done, and in turn, the farmers can grow the crops. Secondly, it also supports our foray - the vectors in FMCG. Medicinal plants can also be used in personal care products. Natural ingredients are used to a very large extent – be it food products or natural care. We have aloe vera and now lotus oil under Vivel, but here is a space which is a specific benefit-led which is being currently explored.
There has been enormous environmental degradation and while that has happened the reality is that we are still unable to deal with the challenge of providing livelihoods to millions of people. In India, I think the challenge is even severe because India being home to 17% of the world's population just has 2% of the land, 4% of water and 1% of forest cover. There is a World Bank report which says that by 2030 the per capita availability of water in India is going to be half of what it was in 2010. And already today I think over 50% of the agricultural area is under water stress and agriculture is so critical to India, in a way it's a lifeline. More than 50% of the workforce is employed in agriculture and by 2025-2030, India will have over 1.5 billion people. So not only it has to create food security for the nation but it also needs to deal with the challenges so that productivity moves up and people also earn a life of dignity. Given the enormity, each one -- policy makers, enterprises, civil society or individuals -- has to play a role in mitigating these challenges. More than two decades ago we set on the path to making a progressive growing contribution to the economy on areas of national priorities and our focus, or our strategic objective will move beyond shareholder value to societal value. The idea was not that it will be only societal value without shareholder value when shareholder value is the foundation around which this has to be built, so that also has to be done. We took this path and today ITC as an Indian company is the only enterprise in the world that is carbon positive, water positive, solid waste recycling positive. All of these parameters we have achieved for a decade or more and along with that we have created six million livelihoods and shareholder value has grown twice the rate at which Sensex has appreciated during that period. So simultaneously, societal value, environmental replenishment and shareholder value have been created. There is also a school of thought which says that this whole aspect of social dimension and shareholder value can conflict with each other and that one can kind of compromise the other. I'd say it is not so and ITC's approach to business is a great example. It is really a choice of strategies and business model that an enterprise adopts. In a way, it is also in the enterprise’s self-enlightened interest because enterprises cannot succeed in societies that do not succeed. If you do not have water, how will agriculture happen or if there is large-scale unemployment it can be a source of social unrest.
