ITC to focus on building Indian brands - Mint
July 28, 2012
Chairman YC Deveshwar said the company has planned to undertake investments of nearly Rs. 25,000 crore
Y.C. Deveshwar, chairman of consumer goods maker ITC Ltd, would have loved to rename his company "Indian Trademark Corporation", he said, proposing to invest Rs. 25,000 crore over the next 5-7 years to turn it into a "storehouse of valuable (Indian) brands".
Unfazed by "concerns of slowdown" in the global economy, ITC is going to pursue an investment-led growth, building "Indian brands" amid tough competition from multinational companies, which, according to Deveshwar, are "ahead in the game".
"It is very difficult for emerging economies to build brands," he said, adding that foreign brands dominated India, and that 7-10% of the revenue earned by them is taken out of the country by multinational firms as royalty.
Even risking criticism that he "put the country ahead of the corporation" he heads, Deveshwar said ITC would continue to invest aggressively to build capacity, and that other companies, too, should emulate it and "fast-forward" investment plans to give a "fillip" to the Indian economy.
Recent performance of Indian firms show "the consumption story is still alive-what isn't, is the investment story," Deveshwar said. Sentiment would improve if companies such as ITC continued to invest. "It is time(the) industry asks (itself) what (it) can do for the country," he told shareholders earlier addressing them at ITC's 101st annual general meeting in Kolkata on Friday.
The company, according to Deveshwar, has already committed substantial investments in over 40 projects currently under implementation, such as Rs. 3,500 crore in a timber-to-textbook project, which is awaiting clearance from the environment ministry.
It recently bought for $75 million a plot of land in Colombo in Sri Lanka to build a hotel and is planning to build more hotels in India, in cities such as Noida and Hyderabad.
ITC isn't changing its name, though. ITC, which isn't an acronym anymore, derived its name from Imperial Tobacco Co. of India Ltd-a company founded 101 years ago, which is still one-third owned by the UK-based British American Tobacco Plc.
Until the 1990s, ITC was controlled by BAT, but largely during Deveshwar's current term as chairman, which began in 1996, it became a company managed by Indian professionals. ITC changed course and started building India consumer goods brands under his leadership.
On Friday, Deveshwar set a steep target for the company by announcing to its shareholders that revenue from its non-cigarette consumer goods businesses such as personal care products, branded packaged food, apparel and stationery products would top Rs. 15,000 crore in 5-7 years from around Rs. 5,500 crore in the last fiscal.
ITC's shares rose 2% on Friday to Rs. 254.40 each on the BSE, while the bourse's benchmark Sensex gained 1.32% to close at 16,860.16 points.
Analysts said unlike other consumer goods manufacturers, ITC draws its strength to invest in its operations from its cigarette business, which generate more than Rs. 1,500 crore in pre-tax profit every quarter. Some analysts such as those at Citigroup Inc. even express ITC's capital expenditure, or the money spent on building capacity, as a percentage of its operating profit from cigarettes. These analysts declined to be named.
An ITC official said the company has for all its key products traditionally relied more on its own facilities than on contract manufacturers because of its concern for quality. At a time when consumer goods companies are increasingly getting into manufacturing arrangements to remain "asset-light", ITC continues to build its own production facilities, he added. To be sure, ITC, too, has a large number of contract manufacturing partners, according to this person, who did not wish to be identified.
In line with its strategy, ITC is launching a dairy in Munger in Bihar, having already helped dairy farmers raise milk production. In West Bengal, it proposes to build two factories for food products.
