“Our ambition is to be the company no. 1 FMCG in India,” says ITC chief Sanjiv Puri.

ITC Chairman and Managing Director Sanjiv Puri deciphers the company’s M&A mantra and explains why its FMCG portfolio is business critical

By Sourav Majumdar and Krishna Gopalan

For a company that entered the FMCG business at the turn of the century, ITC has been quite successful. With brands such as Sunfeast, Aashirvaad, Engage, Kitchens of India and Savlon, it has not only made a mark but has also managed to create a business cut in several categories. ITC has fully leveraged its agro back end, with a strategy that is a combination of organic and inorganic growth. This has helped it leapfrog the competition, either by expanding an existing market or often by creating a new one. In a casual chat at Virginia House, ITC’s head office in Kolkata, Chairman and MD Sanjiv Puri, 60, describes how the company has navigated this extremely competitive business and still managed to create a unique positioning. Edited excerpts:

Why is FMCG such an important business for ITC?

For an Indian consumer, it is important to consume Indian products and have a home-grown FMCG company [and] we aim to provide the best quality products. In the last five years, we have grown from revenues of Rs 10,000 crore to Rs 16,000 crore in FY22, while margins have expanded by 600 basis points. Our portfolio has over 25 parent brands and a consumer spend of Rs 24,000 crore. The addressable market for us today for the categories we operate in is to the tune of 5 lakh crore, which is among the highest in the Indian FMCG space. Our ambition is to be the company no. 1 FMCG in India and we understand that it is a journey that will take time.

We have a lot of “firsts” to our credit. Among them are concepts such as fillings with chocolate or shower gel. Likewise, we brought the pocket perfume to the market.

You have a huge advantage in terms of synergies within businesses…

Yes, this is something unique to ITC. The synergy of ITC’s institutional strengths is truly unique. The food business derives competitive advantage from the complementary strengths of the agri business, the culinary expertise of ITC Hotels, the innovative capacity of our packaging business as well as our extensive distribution network. Classmate stationery brand profits from the cardboard and specialty paper business. Our Fabelle chocolates were developed by master chocolatiers from the hotel business. Likewise, the agarbatti brand, Mangaldeep, is also leveraging our plantation expertise.

ITC has made some interesting acquisition moves (some examples are Sunrise Foods, Nimyle, B Natural). What’s your M&A mantra?

There are a few boxes that need to be ticked. First is the vision we have for the portfolio and, therefore, which white spaces are important. Then, we need to look at a potential purchase from the point of view of the consumer trend. Finally, we must have a sound understanding of the competitive landscape and our right to win.

Take the case of Sunrise. Spices is a Rs 50,000-crore industry and it takes a long time to develop a brand; inorganic was therefore a good option. A key valuation metric was the Ebitda multiple and growth opportunity. An M&A should be valuable to us. Other good examples are what we did with Savlon and Nimyle. Today, Savlon has innovated and demonstrated brand extensions that work, along with speed of execution. The objective has been to democratize the brand and it has worked well.

It’s not just the big ticket purchases you’ve made

Yes, there are cases like Sparsh [Mother Sparsh Baby Care was acquired in 2021 when ITC picked up a 16 per cent stake in the D2C ayurvedic and natural personal care brand]. Here, if a space is interesting, like mother and child, we will look at it. Then, if the option to buy small stocks initially seems logical, we will do so and remain invested. Ultimately, if there is an opportunity for a full acquisition, we may do it, but only if it fits our strategy.

Coming back to FMCG, food is the biggest part of your business, right?

Yes, and that’s how the overall market is moving. Plus, we have a very powerful farming resource that goes well with it. Over time, we have achieved strong leadership positions in key categories – like those with Aashirvaad, cream biscuits with Sunfeast or Bingo in the snack food bridge segment. Our agro expertise has been a major asset in atta’s success, given our excellent sourcing and blending capabilities.

Food is a business we started with [and] are over-indexed. Our USP here is knowledge of chefs and cuisine. Our Master Chef frozen meals are fine-tuned by our chefs.

Incidentally, we are also the largest player in the stationery business and second in agarbattis, but these are relatively smaller segments.

There are many opportunities in FMCG that ITC can look at. Would you look at cooking oil, for example?

This is unlikely as we do not think we can create value. The question is what differentiation does it bring to the table. Take the case of our atta business where our blending process is unique or salt where natural salt becomes a strong proposition.

A key part of our milk business is the way it is processed, which enables us to offer differentiated and value-added products. One such example is our lactose-free offering that is sold in bags and not in tetrapacks, with the aim of democratizing solutions. Today, in our dairy business, 25 per cent comes from value-added products like lassi, curd, doi meat and paneer.

Milk is a scale game. We are present in Bihar and Kolkata now. If we succeed, we will move to other markets, but it is important to create a model that can give us the right economics.

How do you handle portfolio delays?

Brand rationalization is ongoing. We came out of businesses like Wills Lifestyle, John Players, shampoo and greeting cards. Within the portfolio is a full output or one that is regional.

At what point does brand extension make sense?

Let me take the case of Aashirvaad, where the brand stands for quality, trust and all things healthy. When the extension fits these criteria, we will proceed. Fresh milk is convenient and makes sense to place here. However, milkshakes will not come under Aahirvaad.

At what point do you decide that a large category (like cookies) is ready to transition from a third-party manufacturing arrangement to do-it-yourself?

There are three areas we consider here. One is the unique innovations that we have and then the ability to make the best use of our integrated infrastructure, which gives us efficient unit economics. Finally, we will do it if there is better control over processes and technology.

How much of a transition do you think ITC has made from primarily selling cigarettes?

Admittedly, it is a very different company today with less than 40 percent of its revenue coming from tobacco. FMCG is a big part and there are some big businesses within it. I am personally very involved here and devote a considerable amount of time to the businesses. FMCG has many components – new markets, new categories and tremendous scope for innovation. In addition, the breadth of our portfolio will indicate that there are many children [brands at an early stage of the growing up process and with potential].

In the medium term, we want to demonstrate industry-leading growth, improve margins, consistently sell high-quality products, focus on sustainability, and grow categories and neighborhoods. There are several possibilities that are interesting and proximity is one. Our objective will always be to create a point of difference.

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