ITC's Deveshwar, the reinventor of a multinational

Yogesh Chander Deveshwar
On February 5, when Yogesh Chander Deveshwar steps down from his role as chief executive officer, after a stint spanning more than two decades, he would be leavingfor his successor an ITC very different from the one he inherited.

Deveshwar donned the role of ITC's executive chairman in 1996. Since then, the company's revenues have grown ten-fold to Rs 51,582 crore and profit before tax 33 times to Rs 14,958 crore; total shareholder returns have grown at a compounded annual rate of 23.3 per cent. From fewer than a 100 SKUs in 1996, the distribution highway now handles over 1,500 SKUs of multiple businesses, directly servicing over two million retail outlets across trade channels in 1,00,000 markets.

But that's ITC story in numbers. Deveshwar's biggest achievement is that the ITC of today is more than just a cigarette maker. Today's ITC is not just defined by its cigarette brands -- India Kings, Classic and Goldflake; it is also identified by Sunfeast (cookies and biscuits), Bingo! (snacks) and Aashirvaad (staples and ready meals). The new FMCG businesses, nurtured over the last decade or so, have crafted a portfolio of 25 mother brands, commanding a consumer spend of more than Rs 12,000 crore.


The Aashirvaad brand has crossed the Rs 3,000 crore mark, Sunfeast over Rs 2,500 crore while Bingo!, Classmate and Yippee have exceeded Rs 1,000 crore each.

As Deveshwar said at his last annual general meeting in the joint capacity of Chairman and Chief Executive Officer of ITC, "Compared to the size of ITC in 1996, the non-cigarette businesses alone represent a size akin to creating five ITCs of that time."

ITC's non-cigarettes businesses have grown seventeen-fold in the last two decades and registered a net segment revenue of Rs 23,000 crore. The share of cigarettes in the total revenue earned has steadily been coming down too; from 56 per cent in FY2013 it dropped to 42 per cent in FY2016. Yet financial analysts grumble that the non-cigarettes businesses don't enjoy the profitability of the cigarettes business. May be so, but it is in sync with Deveshwar's philosophy of 'building for the future'.

It wasn't easy getting where ITC is right now in the non-cigarettes business.

Diversification, per se, wasn't new for ITC. Since the late 1960s, almost every ITC chairman has tried his hand at diversification. But by the time Deveshwar took charge, most of them had failed, or were faltering.

So, Ajit Narain Haksar had opened ITC's first hotel in Chennai, the ITC Welcomgroup Hotel Chola, in 1975, followed by paperboards. Jagdish Narain Sapru led the foray into financial services and took the iconic Bukhara restaurant to New York, apart from setting up the edible oils business, ITC Agro Tech. Krishan Lal Chugh set up the trading company, ITC Global Holdings Pte, but his stint was more memorable for a public spat with British multinational, British American Tobacco (the single largest shareholder in ITC), over a foray into the power business, which the multinational had blocked. BAT had even tried its hand at taking control of ITC, but that didn't work out.

The biggest challenge for Deveshwar, however, was to restore the reputation of the storied Viginia House, corporate headquarters of ITC, tattered by an investigation by the enforcement authorities under the FERA law, against 14 members of the then current and past management including two chairmen. A restrospective excise demand of Rs 803 crore, amounting to three times the annual profit of ITC at that time, was made on the very first day that Deveshwar took charge.

The challenge, as Deveshwar told shareholders recently, was to steady the ship first and articulate a superordinate vision for the company. And how.

Much to the angst of BAT, Deveshwar stuck to the diversification script even though there were exits from financial services, edible oils and overseas restaurants. Non-cigarettes FMCG, hotels and information technology were identified as the new areas of growth.

From 12 hotels in 1996, ITC has grown to over a 100 properties across four brands, namely, ITC Hotels, WelcomHotels, Fortune and WelcomHeritage. There's a lot more coming in the hotels space; ten owned hotels are in various stages of construction in the luxury and five-star segment, while 30 owned/managed hotels are on the drawing board in the mid-market to upscale segment. And that when most peers have gone the asset-light way. The mantra, here too, is looking at the long-term.

In 2000, ITC launched its most awarded initiative, the e-choupal, a model that enables farmers to obtain information on mandi prices and good farming practices. Though constrained by regulations, it has worked wonders for the foods business, which is ITC's biggest success in the non-cigarettes FMCG segment. In food, today, ITC is at number three with revenues of Rs 7,100 crore, but in the next couple of years, it's eyeing the top slot.

But that's part of a bigger target to grow the non-cigarettes FMCG business to Rs 1,00,000 crore by 2030. The basket of non-cigarettes FMCG products, is therefore, constantly expanding. The latest entrants are Sunfresh (dairy whitener) and at the premium end Fabelle (chocolates) and Sunbean (coffee).

The goalposts, however, have been moved further by Deveshwar for his successor, Sanjiv Puri, who will slip into the role of chief executive officer, on January 5. The aim is to make ITC a multi-national corporation. All eyes on Puri now to take it forward.  

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