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ITC: Enduring Value

Sab Saath Baadhein

Media Centre


ITC may Buy More for Smoke-less Growth 10 Mar 2015

The Economic Times

New chief of FMCG business Sanjiv Puri says the target is to achieve a turnover of Rs 1-L cr from non-cigarette FMCG business by year 2030

Diversified conglomerate ITC is scouting for more acquisitions to scale up its non-cigarette fast-moving consumer goods (FMCG) business as it expects cumulative brand turnover from this segment to increase to Rs 15,000 crore in the next two-three years.

In his first media interview after taking over as ITC's president (FMCG business), a newly-created post, Sanjiv Puri said that the company is laying the foundation for the next phase of rapid growth, in line with its target of achieving a turnover of Rs 1 lakh crore from new FMCG businesses by 2030.

"The target is ambitious, but it is certainly achievable given the opportunities in the FMCG space. We expect growth rates to improve once the economy is on a higher growth trajectory," said Puri.

He, however, declined to comment on the turnover target of ITC's FMCG businesses and the impact of increased taxes on cigarettes. Two industry executives said on the condition of anonymity, though, that ITC expects a brand turnover of Rs 11,000-12,000 crore in the current fiscal from its portfolio of 50 FMCG brands across 20 categories. This spells a growth of up to 20% for the company's non-cigarette FMCG business -twice the pace of the industry's growth rate - since the company had scaled the Rs 10,000 crore mark in the segment in 2013-14.

The company created the new post in December last year to sharpen its focus on FMCG business and drive distribution synergies with the cigarette business. Puri, who is now accountable for driving 60% of the conglomerate's revenues and 80% of its profit, is widely perceived as the man to watch out for in ITC as chairman YC Deveshwar's retirement is just two years away.

Analysts said ITC is in a hurry to scale up its FMCG businesses to de-risk the flagship cigarette business, which is under strain due to recurrent increase in taxes on cigarettes. It is estimated that ITC's cigarette sales fell by a record 15% during the quarter to December 2014, compared with the year-ago period. ITC has been on an acquisition spree in FMCG business of late, marking a shift from its initial focus on creating brands from scratch. In 2014, it acquired the B-Natural juice brand and last month it acquired Savlon and Shower to Shower from Johnson & Johnson.

Puri said the company is scouting for acquisition targets that are synergistic with its plans and strengthen ITC's portfolio. For instance, ITC is now using its agri-sourcing capabilities and hotels to build a strong portfolio in beverages based on the B-Natural brand, which it has just re-launched.

Similarly, the firm will first focus on Savlon and Shower to Shower's core segments of antiseptic and prickly heat powder, and eventually extend the brands into other associated categories, much like how Dettol straddles health and hygiene segments. It is also gearing up to enter the dairy segment with ghee and dairy whitener next fiscal, and will commission its dairy plant in a month or two.

Puri said ITC will expand direct reach to retail outlets by 10-15 % every year and also garner a larger share in existing outlets with focus on enhanced assortment, superior point of sale (POS) presence and micro targeting outlets. At present, ITC sells its products through nearly 50 lakh outlets.

"At the same time, we are continuously examining opportunities to expand our presence in all ecommerce sites and have set up our own online store for niche products like Kitchens of India," he said.

A recent report by Edelweiss said that since government has again raised taxes in this year's Budget despite flat revenue from cigarettes, taxation is an indication that the government's prime motive at this juncture is to cut cigarette volumes rather than bolster its tax kitty. "So, the overhang of steep excise hikes is likely to continue for the next four years," the report said. While ITC's packaged food business has been profitable for the past four years, the company last turned its decade-old non-cigarette FMCG business profitable in 2013-14.

© ITC Limited