‘Like Korea’s Samsung, India Needs Its National Champions'
As someone who has spent three decades in the organisation, and handled a wide range of responsibilities in ITC — from digital technology to operations to manufacturing — Sanjiv Puri, many reckon, was a natural choice to take over as the CEO from iconic Y.C. Deveshwar. Puri, 54, an IIT-Kanpur graduate, in an exclusive conversation with BW Businessworld’s Suman K. Jha and Monica Behura, opens up on the group’s priorities and, of course, the comparison with Deveshwar.
Edited Excerpts:
You believe that we have political freedom, but not economic freedom yet. You believe in the ‘India first’ philosophy. What does this mean for the group?
ITC has always been very keen to make a larger contribution to the economy. Ever since the time we had the first Indian chairman, ITC did start the diversification foray.
In the mid-1990s, in fact, when Mr Deveshwar took over as chairman, a conscious decision was taken to look at areas beyond our current businesses where we could make a significant contribution to the globalising India economy. At that time, we also said that we will do it in a fashion that creates a lot of value for our stakeholders. So, we brought in ‘triple bottom line’ at the core of corporate strategy, which meant, we will not only focus on economic value creation, but we will be environmentally and socially responsible.
Over the last 21 years, our market cap has grown by nearly 80 times. The turnover has grown 11 times. The total shareholders’ returns have been about 24 per cent, which is more than double of the return that Sensex has given during that period. This is also a period where our non-cigarette business has grown 18 times in terms of topline and non-cigarette profits have multiplied 71 times. At the same time, we have become a carbon positive company for the last 12 years, water positive company for the last 15 years and solid waste recycling positive company for the last 10 years. We have, in the process, created six million livelihoods.
We innovated on corporate governance — it is a 3-tier structure with the board for strategic supervision, the corporate management committee, and the management committees of each of these businesses, each headed by a chief executive, who is responsible for the business and the Corporate Management Committee takes the role with a mindset of a venture capitalist bringing in synergies, that enable and empower businesses The individual businesses have the freedom to focus on their areas, create value in their business areas without getting unduly constrained.
In all our businesses, the customer has to be at the centre; quality has to be best in class; and innovation is a common theme. That is what saw us invest in a large life sciences and technology centre, which has 350 scientists and now 630 patents applications.
You are a leading business conglomerate and we live in a globalised era. How do you reconcile yourself to this ‘India first’ philosophy in a globalised era?
There is no inherent contradiction. Our results demonstrate that it is possible to simultaneously deliver performance on all the three elements of the ‘triple bottom line’.
It is really the choice of strategies. Let me give you an example: when you create societal value or when we look at the element of environmental sustainability, you have to do it in a fashion that is synergistic with your business model.
Looking at an FMCG example, we have Aashirvaad atta, which is a market leader and has achieved this distinction in a very short span of time. Now, Aashirvaad atta has achieved this distinction by leveraging the synergies —Our Agribusiness, which works with the farmer; we have the ITC Life Sciences and Technology Centre that focuses on R&D; we have the hotels where chefs help us in fine tuning the taste of our food products.
Our agri-business division works with farmers through our globally acknowledged e-Choupal network.
It is also about creating world-class Indian brands that create value in the country. Samsung is about 20 per cent of the GDP of Korea. India also needs its national champions.
We have an opportunity to create brands that are more relevant for the Indian consumer. This creates an advantage for us also, when we design our food products and validate it against Indian taste and preferences. For example, Yippee! noodles today has 22 per cent market share.
You, as a group have a presence in agriculture, manufacturing, and services, the three sectors of the economy. Has sustaining this been a challenge?
Yes, you are right. Because we are in a very diverse range of businesses right across all the sectors of the economy — agriculture, manufacturing and services; and within services, we have hospitality on one hand and IT on the other. So, it is a very diverse range of businesses, which is always a challenge and it does add to the complexity of the management of the enterprise.
I think, the solution lies in the strategy of the organisation, the solution lies in the corporate governance principles, which are followed, and the solution lies in the common values and themes that run across the enterprise.
I am not sure if you know we also have, in our R&D centre, something called a sleep lab. So, ultimately the most important thing for a person who goes to our hotel is to get a very comfortable night’s sleep. So we have a sleep lab there.
When we do ‘green hoteliering’, this is also the most environment-friendly atmosphere for the guest.
You talked about green hospitality being your motto. We know that new properties are coming up with 3,000 rooms. What is the next offering you are going to make in the space?
20 years ago, we just had about 12 properties. Now, we have over 100 properties and, over time, we have created some iconic cuisine brands. ITC is recognised as a market leader in the foods and beverages segment.
So, we have got brands like Bukhara, Dum Pukht. Then, Avartana is the recent restaurant brand that we have launched in Chennai at ITC Grand Chola.
We have built some iconic properties like ITC Grand Bharat, ITC Grand Chola, ITC Grand Bharat being rated as the best Hotel in Asia, and the fourth best in the world. With 10 luxury properties under construction, I think we would have a sufficient footprint because we will be present in all the metros where we are not there today. At present, we are not there in Ahmedabad, we will have a hotel there. We don’t have a hotel close to the cyber city in Hyderabad; we will be there and so on.
By when do you think these 10 properties would be in place?
In the next few years, all of them will be ready. The ITC Kohinoor should be starting early next year, then later, we would have the ITC Royal Bengal. So, one by one, these properties will be ready. We will have ITC Narmada, and then the property in Amritsar.
You source wheat, chillies, turmeric, coriander, potato, fruits from farmers. Now, with the farm sector in deep distress, has this impacted your business?
An overall sense of distress in the farm sector impacts the economy and consumption. So, that, in turn, impacts the growth of FMCG. But as far as our Agri -Business is concerned, I think it has not been impacted that much. ITC has been a pioneer in rural transformation.
The idea is not about just buying and selling agri commodities but really to add value to the entire agri value chain. And for that purpose, we even engage our Life Ssciences and Technology Centre. We are leveraging the strengths of Agri-Business. One example is our launch of prawns under ITC Master Chef. We have been working with farmers and exporting prawns to more than 40 countries. We have brought to the Indian consumer, super safe prawns, which meet the stringent quality standards of EU, Japan, US and, of course, India.
Could you tell us the two main ingredients of success for the FMCG business and will that hold for your 2030 vision? You aspire to be the next HUL, but then you will have to add a lot of product categories. Will you be able to do that in order to achieve the Rs 1 lakh crore as per the 2030 target?
FMCG is a space where there is a lot of opportunity because the market is set to grow, and penetration is set to increase. This is an area where we have done quite well in a short span of time. There are categories in which we are leaders, like, say, atta (Aashirvaad), stationery (Classmate), cream biscuits (Sunfeast)... So, there are areas where we are leaders, there are also areas where we are No. 2 or No. 3 and our foods business is already the third largest foods company. Last year, our foods business grew at over 13 per cent, that too in a year in which demonetisation took place, which, I think, is a significant growth.
We are focusing on creating the supply chain infrastructure, which is going to give us the scalability. We are creating the physical infrastructure right now and that is where we are looking at creating 20 integrated consumer goods manufacturing units.
If you look at new categories, we have gone into luxury chocolates and luxury coffee as well. We have introduced luxury chocolates from our hotels, where we have created boutiques. That helps position the brand and it also helps us get quick consumer feedback.
ITC Infotech has got ambitious expansion plans. What are these plans, and have they been hit by the slowdown in the IT sector?
ITC Infotech is a specialised global IT services company and I say, specialised, because it builds a lot of domain knowledge that comes from the various verticals of ITC.
The entire IT Industry is going through certain challenges at the moment. The geopolitical risks of restrictive movement of people and so on. But I think, the larger issue is that the whole industry is at a point of inflection now. It is a phase where the whole technology landscape is actually fundamentally changing. Digital is becoming centrestage. The bigger investments are increasingly taking place in the space of digital and each IT company is confronted with the challenge of transforming itself to meet the challenges of the new and emerging technologies, which are coming in. And that is, in my view, an opportunity for a new entrant.
This is your third job but then you have already spent three decades in this company. How has this overall journey in ITC been?
It has been a very enriching and fulfilling journey. If I go back to my early days when I joined, I experienced a lot of empowerment and freedom.
It was very enriching right from my early days because in the 1990s, India opened up suddenly and the economy started globalising, the early impacts were in manufacturing where I started my career. Earlier, because of restrictions, Indian manufacturers did not have the best-in-class materials or technologies. So, you suddenly had the opportunity to do that. I saw this whole transformation of shifting to new levels of productivity and quality and which is less about the infusion of capital and more about changing the mindsets of people and getting them to align with new technology.
I had the opportunity to work on e-business strategy for ITC that time. I think the technology wasn’t as mature and the business models weren’t completely integrated. The dotcom bubble also burst that time but it was a good experience because we could identify the potential of this technology in future.
I also had the opportunity to run Surya Nepal and ITC Infotech. Then, I came back here and I had the opportunity to run tobacco, trade marketing and distribution and other FMCG businesses.
You were associated with FMCG, agri-business, cigarette business, food, personal care, education, matches and infotech. Did you know that you were being groomed for a larger role?
I got to know only at the time (of appointment) or very close to the time (of appointment).
We talked about Deveshwar. You have said that ‘distributed leadership’ is one trait that you have learned from him and, of course, ideas like the 2030 target continue to be the defining target for the group. What else did you learn from Deveshwar?
I think, the skill of guiding or mentoring people and, at the same time, doing it in a fashion that is seen as being enabling and empowering rather than prescriptive, so that the opportunity for the businesses or business leaders to apply their minds independently. They are fully empowered to build on the inputs given, modify them or even discard them.
So, that was an important learning. As I worked with him in a lot of areas, I picked up the skill of dispassionately analysing business models and strategies.
How different are the two leadership styles – that of Deveshwar and yours?
We have a leadership that is building on ITC’s values and the whole philosophy of ‘distributed leadership’ and the philosophy of analysing strategies from a distance, I think that continues. The difference really comes up at the level of execution. It is related to the evolution of each individual and also relates to a style. I have, for example, a tendency of getting into far more details when I want. Mr Deveshwar is much more experienced and knowledgeable and has far more insights into each one of the businesses. Therefore, sometimes you know you are also able to take decisions without a deeper analysis because there has been a lot of learning and insights gathered over a period of time.
If we could come to the specifics — cigarettes bring so much of revenues for the group. Now illegal cigarettes and high taxation continue to affect the cigarette business. What else is hampering its growth?
I think, what has been happening in the cigarette industry over time is, taxation has been growing rapidly. In the last few years, it has more than doubled. As a result, smuggled cigarettes also find their way. This has been reported by Ficci and others.
Cigarettes have become more expensive. The ratio between cigarette and other tobacco products over time has widened. So, the overall tobacco consumption in India has not gone down for a long period but cigarette consumption has gone down. The legal cigarette is only 11 per cent of the total tobacco consumption in the country, accounting for 87 per cent of the revenues.
The second thing that has happened in the recent past is the revised pictorial warning, that is, 85 per cent of pictorial warning on both sides. Now, this again creates a problem with respect to smuggled cigarettes.
There is a research by a leading Indian research organisation that shows that consumers prefer packs that do not have these warnings. So, it is not that pictorial warning is impacting consumption; it is just leading consumption to move to other forms of tobacco or to illicit cigarettes.
Could we see one day the group exiting the cigarette business?
I don’t see that because it is a legal business, and by ITC being in this business or not being in this business is not going to impact the consumption. If we were to exit, then somebody else will come in. In fact, ITC has invested in the products over the years and has built Indian brands that are liked by Indian consumers. Had we not created such strong Indian brands, the incidence of smuggling in India would have been even higher.
Would GST help?
Notifications have just come out and we are studying all the details. Wherever there are benefits of taxation that have to be passed on to consumers, we will surely do it.
Talking about FMCG, we have seen a deceleration in the growth rate. You think things will change this year?
We have been growing much faster than the industry. I have mentioned about foods segments — we would perhaps be the fastest in the country. We are very optimistic, and that is why our investments are not being stopped or delayed or rescheduled. There are a number of government schemes like ‘Make in India’, ‘Skill India’, the transformative GST reform — I think all these are going to over time increase the growth rates.
There are a number of brands where you are the clear leader. But there are a number of categories where you are No. 2. What are the strategies and timelines to become the No. 1 in these categories?
We don’t have a timeline for that. I think what we have to focus on is doing the right things in terms of product innovation, in terms of consumer engagement, in terms of distribution, in terms of new offers in the market and, over a period of time, we believe we will get there. What is important for us is that each year we make progress that is in line with our internal milestones.
What are your internal milestones of the year?
I cannot give you guidance — we do not do that as a policy.
What are the challenges you face as a new-age CEO, apart from innovating on a day-to-day basis?
We can look at it from two perspectives. One is related to talent and people. It is about attracting the best talent, keeping them engaged and excited, aligning them. That is a challenge in today’s world. ITC has done quite well there and we will continue to build on that. The other challenges are really about maintaining diversity, there are challenges related to the tobacco industry particularly with the growth of illicit cigarettes. Categories in which we are new like FMCG, etc, I think, the challenge for us is that everywhere we are fighting against the brands that have been existing for five decades or 10 decades. So the challenge is about how you create a proposition and win over the brands that have been a part of the consumer’s DNA for a century or decades.
We talked about this 2030 target that you have. But what are the targets you have for the next one year, 5 years, next 10 years?
These are our internal plans. We cannot give you that.
What has been the experience working with various State governments and the Union government?
We have received tremendous support from governments, whether for procurement of land, or approvals for projects. There are situations, where senior officials and sometimes senior ministers and chief ministers call and invite you to invest and enquire about the status of your investment. So, not only is the process getting more and more efficient, I think there is more of energy and intent to accelerate the growth rate. You can see wherever there are problems, leadership at the States’ level is very proactive in trying to find a solution to it. I think, the Central government’s initiative on the State wise ranking of ease of doing business has done a world of good.
ITC has created 25 brands. Since you aspire to be the next multinational like an HUL in FMCG how will you create global brands that cater to the overseas market?
First, we would like to focus on India. We do export today but that is more due to demand than any proactive marketing. For example, we don’t market Aashirvaad atta, but there is demand for Aashirvaad atta in the US, in Europe, in Australia, in New Zealand and so on and demand for certain other products as well.
