Open to demerger of FMCG, listing of IT businesses: ITC chairman Sanjiv Puri

ITC Ltd chairman Sanjiv Puri said the company is open to the idea of demerger of the non-cigarette fast moving consumer goods (FMCG) business and listing of the information technology (IT) businesses if it creates sustained value for shareholders and depending on business maturity, while the conglomerate has not shelved the demerger plans for the hotel business, which will be done as soon as the industry recovers.
The company is also actively pursuing acquisitions opportunities in FMCG and IT business, while it has lined up investments of Rs 10,000 crore over the next three years.

Puri further said ITC is going to shrink its mass market soap and shampoo brand Superia since it has not been able to meet expected performance, while the company is setting up sleep boutiques as part of its hotel business to sell products associated with sleep such as beds, fragrances and pillows which will be further expanded and sold online.

Puri said these during the company’s first ever institutional investors and financial analysts meeting held virtually on Tuesday.

Puri said the company and its board periodically reviews all options of demerger, listing and unlocking value of businesses and the final decision will be taken if it creates sustained value for shareholders. “Nothing is cast in stone...Decisions to unlock depend on the business maturity and business context,” Puri said, while adressing queries on demerger of FMCG business and listing of ITC Infotech, a wholly-owned subsdiary of ITC.

Puri said the FMCG business was incubated as part of the company to leverage institutional strengths such as sales channel, commercial, lower cost, product development synergies and hence the cost of building the business has been far more efficient this way. Similarly, the hotel and paper businesses were initially separate but were subsequently merged for a purpose, he said.

“The plans to create an alternative structure for the hotel business have not been postponed for the long term and will be done as the industry recovers. Business travel is at 40-50% of pre-covid days, average room rent is at 70% while occupancy level is back to pre-covid levels. The performance of the business will be better in the current fiscal and the industry is picking up pace with progress in vaccination and a low covid case count. It will be on a firmer wicket next year, though may take a little longer to normalise,” Puri said.

Puri said ITC is actively exploring opportunities for acquisition in the FMCG and IT business. These will be an integral part of the growth strategy of the company which till now was largely through the organic route, he said. In FMCG, ITC is open to acquire regional brands or to enter new areas or adjacencies, however it will be choosy, the deal must be value accretive and will not buy anything at extremely high valuation.

ITC’s chief financial officer Supratim Dutta said of the Rs 10,000 crore investment earmarked for the next three years, 35-40% will be spent on the FMCG business, including cigarettes, to create new lines as sales and demand grows; 25-30% on the paperboard business since the nature of the business is capacity led growth, 10% on the hotel business to complete existing projects and balance on the agri-business to drive its digital growth and sustainability.

Dutta explained that the investment into hotels will come down due to bigger focus on management contracts going forward, and all big investments will be over by FY23 when the projects in the pipeline are completed.

ITC share price has been on a roll ever since the company last Thursday announced its plans to hold the investor meet with the market expecting an announcement on FMCG and hotel business demerger. On Tuesday, however, the share price fell by 2.73% to close at Rs 228.3 on the Bombay Stock Exchange. The Sensex closed at 0.29% lower.

On the cigarette business, Puri said the recovery has been robust in the first half of the fiscal, there is a premiumisation of portfolio backed by innovation and better last mile execution of the assortment. The economy is stabilising, which augurs well for the category, he said.

“Cigarette is just 8% of tobacco consumption. In periods of stability of tax, the legal cigarette industry claws back from illicit and volumes firm up. In the recent past, when taxation went up by 15% the revenue collection from cigarettes grew by 5%. In the period of tax stability, revenue grew by 10% led by volume. We hope the government takes into consideration all these since the industry and farmers were badly impacted also due to the pandemic,” Puri said.