ITC: Weaving The Future

Those were turbulent times for India and ITC. The Congress, under P. V. Narasimha Rao, had lost the Lok Sabha elections. A new government led by Atal Bihari Vajpayee survived just 13 days, and was replaced by a rag-tag coalition called the Third Front. Things were even more turbulent at ITC. British parent company BAT had been thwarted in its move to take majority control but the nasty fight led to the removal of ITC chairman K. L. Chugh and a string of civil and criminal cases. That was when Y. C. Deveshwar took over as chief executive officer and chairman of the board of ITC.

In the 20 years since then, Deveshwar, an alumnus of IIT Delhi and Harvard Business School, has not only doused the controversial fires that singed ITC, but has also transformed what was essentially a tobacco company into an FMCG giant.

“Close to two decades ago, when I assumed office as chairman, ITC was confronted with formidable challenges,” says Deveshwar recollecting how the early diversification efforts had either failed or were languishing and further, how the business was not competitive enough in an emerging liberalised economic environment. “ITC’s reputation was sullied by a public smear campaign triggered by a hostile takeover attempt. It was critically important to create a new future for the organisation — a new future that could invigorate and inject new life to every sinew of the enterprise,” he adds.

There are many ways of judging and measuring the value of a CEO. Growth is one of them. In 1995-96, ITC reported net revenues of Rs 2,536 crore. Almost 20 years later, in 2014-15, it reported net revenues of Rs 36,083 crore, a compound annual growth rate of more than 15 per cent. During the same period under Deveshwar, the net profit CAGR went to 20.9 per cent while the market capitalisation CAGR was a healthy 23 per cent. But the most compelling evidence that makes Deveshwar a successful and admired CEO is shareholder returns. In his long tenure, ITC has delivered annual shareholder returns of more than 23 per cent, double the shareholder return delivered by the Sensex.

Even as he readies to hang up his boots in the few years, 69-year-old Deveshwar remains aggressively ambitious. “It gives me immense satisfaction that ITC has transformed into a vibrant multi-business multi-dimensional enterprise,” says Deveshwar.  

Of course, some would argue that Deveshwar has been a lucky CEO. ITC has a virtual monopoly over the domestic cigarette market, ensuring a bagful of profits year after year. There’s a point there as sustained profits from the tobacco business have enabled Deveshwar to invest in diversifying into packaged foods and personal care products in a big way. But luck alone doesn’t explain ITC’s success. After all, even Vijay Mallya had massive profits from the beer and liquor businesses to fuel his expansive ambitions but didn’t quite succeed.

In sharp contrast, Deveshwar’s leadership strategy has been calibrated and well thought out, even when aggressively ambitious.

In 2002, the FMCG segment accounted for a mere 1 per cent of ITC revenues while cigarettes accounted for a whopping 90 per cent. By 2015, the share of cigarettes in total revenue had declined to 60 per cent while that of the FMCG segment had shot up to 20 per cent. Hotels, paper, agri-business and IT accounted for another 20 per cent.

In the last decade and half, Deveshwar has presided over the creation and nurturing of a host of big brands, including Fiama D’ Wills, Ashirvaad, Yippee, Sunfeast and Bjngo. ITC is now looking at expanding to three other categories: Juice, tea and coffee.

Without stating it publicly, Deveshwar seems to be working towards his core vision — ensuring ITC dislodges Hindustan Unilever from its perch as the number one FMCG company in India. In 2002, when ITC unveiled its ambitious FMCG plans, some analysts scoffed at any comparison with HUL. The sneers have now given way to grudging admiration.

It’s been a long and worthwhile journey for the India’s longest-serving CEO.

paramita@businessworld.in