The company has won a major excise duty case after 17 years. How will this shape its future and bottomline?
SOMNATH DASGUPTA
"In the Report & Accounts of the last seventeen years, your Directors have mentioned that a Show Cause Notice dated 27th March, 1987, was issued to your company," says the opening sentence under the header 'Excise'.
Over the past 17 years, ITC's turnover and profits have soared, the company has effected wide-ranging changes in its strategy, launched new businesses and pulled out of old ones and made its mark on Indian cricket at one end and the Indian farmer at the other. Somewhere down the line, it even dropped the full stops in its name. All these changes were recorded faithfully by its annual reports, especially the reports of the directors.
But one thing remained more or less static in the annual reports: the pages describing with monotonous and excruciating detail the company's dispute with the excise department. Successive chairmen exercised their visionary and literary skills with the rest of the report, leaving the legal department to add or modify the excise paragraphs as the case progressed. Now, with the company's stand vindicated in the Supreme Court, the next directors' report could have some insights into the company's strategy for the battle.
As for the victory, ITC stands to get back around Rs 300 crore that it had given as a deposit pending disposal of the case. But this has not been factored into its investment or spending plans, since the outcome of the case or the date of resolution could not have been predicted. In fact, on the day the Supreme Court passed judgment, ITC chairman Yogesh Chunder Deveshwar was in the steel city of Jamshedpur attending a big event on manufacturing organised by the Confederation of Indian Industry.
Business As Usual
But for ITC, therefore, it is business as usual. ITC has four main business segments: fast-moving consumer goods (FMCG), hotels, agribusiness, and paperboards, paper and packaging. The FMCG segment, which again is grouped into cigarettes and 'others', has seen a frenzy of new forays and product launches that have put it more firmly in the consumers' mind and life. Agribusiness, on the other hand, has won it international acclaim for the e-choupal concept and implementation.
In FMCG- cigarettes, ITC is by far the market leader in India with brands positioned across the price spectrum. But, with ITC adopting a ban on tobacco advertising, the challenge remains of promoting the brands. Gone are the days when ITC took its Wills brand international by promoting cricket enthusiastically. Now, Wills is a brand used by it to sell leisure wear.
With the excise worry over cigarettes lifted, the bigger challenge is that cigarettes account for a very small percentage of tobacco consumption in India, although they are heavily taxed. So, when cigarette smoking is targeted on health grounds, critics miss the point that a large part of the population cannot afford cigarettes and actually do more damage to their health by using other forms of tobacco.
In the FMCG 'others' segment, ITC has entered branded packaged foods, lifestyle retailing, greeting, gifting and stationery, and even safety matches and incense sticks.
In hotels, ITC recently decided to merge subsidiary ITC Hotels Ltd and two others with itself. This business will require the largest investments, but offers the largest margins.
It is in paperboards, paper and packaging that ITC is putting in place the biggest-ever corporate social responsibility project in India by way of plantation activity on degraded land. Growing and tending to the plantations creates jobs for locals, while the trees are used as feed.
Its agribusiness segment earlier had only leaf tobacco and commodity trading. Over the past few years, ITC has launched its internet-based network aimed at helping farmers getting the best bargains for their produce. At the same time, the channel into the rural heart is used by ITC to sell products of third parties. But the e-choupal network has also enable ITC to slash the cost of procuring farm produce for its own range of branded foods.
Meanwhile, as an organisation, ITC is now practising the concept of 'triple bottomline reporting', which sort of details its corporate social responsibility (CSR) in hard numbers.
Bottomline Push
The 'triple' part refers to the balance-sheet, the profit & loss account and an explanation of how it has deployed its environmental and social capital. The strategy is to reduce the consumption of energy and water, reduce the discharge of treated effluent, cut down emissions.
For example, ITC is focusing on reducing its overall intake of fresh water and is already close to becoming a 'water-positive' corporation. During 2003-04, ITC's fresh water intake, across all its manufacturing facilities, was 22.48 million kilolitres (kl), a 6 per cent decrease on the figure for the previous year. It discharged 14.04 million kl of treated effluent in 2003-04, against 14.64 million kl during the previous year. Net water consumption declined to 8.44 million kl in 2003-04. At its locations, ITC has increased the rainwater harvesting potential by 60 per cent in just one year, from 0.24 million kl in 2002-03 to 0.39 million kl in 2003-04.
Externally, ITC increased the water harvesting capacity of its integrated watershed management programme across the country by nearly 67 per cent, to around 16 million kl. Added up, the two represent a water harvesting capacity of 16.06 million kl, or twice the net water consumption of 8.44 million kl.
On the energy reduction, it has taken steps to generate enough energy to meet around 97 per cent of its total needs of 11,439 terra joules a year. While energy generate from waste met 24 of its demand, it buys only 3 per cent from the energy grid. Some of ITC's business like paperboard manufacture are traditional energy-guzzlers. But ITC's innovations and controls have ensured that the energy consumption of its business is way below average Indian or even international levels.
Internationally, pulp and paper units consume 33-41 giga Joules to make one tonne of paper. International Paper of the US, a world leader, consumes 34.26 gJ to produce one tonne. The Indian pulp and paper industry consumes 52 to 80 GJ per tonne of output.
But ITC's paperboard unit in Andhra Pradesh consumes 32.20 gJ per tonne of paperboard manufacture. ITC uses a substantial proportion of recycled paper in its paperboard manufacturing operations. ITC's paperboard mill at Bhadrachalam in Andhra Pradesh is among the most energy-efficient integrated paper mills in the world. On the carbon dioxide emissions front, ITC managed to sequester 31 per cent or 311 kilo tonnes out of the total of 1013 kilotonnes generated by its operations during 2003-04.
Its forestry programme has greened 19,500ha of wastelands by planting 66 million high-yielding disease-resistant saplings developed at its own biotechnology research centre. Apart from creating jobs for nearly 200,000 people, the plantations also feed ITC's operations. More wastelands are being brought under a green cover, with ITC aiming for 100,000ha over the next decade.
This ambitious project will also make ITC a carbon-positive corporation. The forest departments of Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra and West Bengal have also planted ITC's clones over 8,000ha.