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ITC, 100 years old and still adding muscles
Financial Chronicle - 21 Apr 2010

Come  August 24, Virginia House in Kolkata will celebrate a birthday. It will be   no  ordinary birthday for ITC, for on that day the company will complete a century  of existence.

And  market grapevine has it that the company will celebrate the day with a special  dividend to its shareholders.

The  company was incorporated on that date in 1910. At the time it functioned from a  rented office in Radha Bazar, just off Dalhousie Sqaure, the city’s main  business district then and now. In 1928 it moved to Virginia House at 37,  Chowringhree, in what was then a predominantly white area.

Much  has changed in these 100 years. Chowringhee, the 2 km long boulevard on the  eastern edge of the vast expanse of the Maidan, is a bit run down. Once home to  some of the most famous British owned and managed companies, no white man owns  or runs anything on the stretch now.

A  few buildings down either side of Virginia House, the famous paints and  chemicals company, ICI, and the medicine company, Reckitt & Colman, long  ago lost their British identity and name.

ITC  itself has metamorphosed in many ways, the least of which is the multiple  changes in nomenclature. What began and stayed for long as only a cigarette  maker has turned into a conglomerate offering a smorgasbord of products and  services, ranging from hospitality to toiletry to apparel to food. Of course,  cigarettes remain a big but gradually shrinking part of its overall business.

Today,  ITC has a market cap of over Rs 100,000 crore and ended 2008-09 with a turnover  of Rs 15,582 crore. It employs over 26,000 people at more than 60 locations  across India and has 338,000 shareholders.

It  is but one of scores of India’s centurion companies. Among others, Andrew Yule  is alive and kicking even at 130 years of age. Then there are Allahabad Bank,  Walchandnagar Industries, Tata Steel, Bank of Baroda, Indian Bank, Alembic,  Corporation Bank, Canara Bank, Bank of India, Shalimar Paints, Indian Hotels,  Spencer & Company, Century Textiles, Punjab National Bank and Bombay  Dyeing. Many companies were originally British and became Indian through the  fifties, sixties and seventies. There are many that assumed Indian names after  takeovers by home-grown business houses.

Originally  incorporated as Imperial Tobacco Company of India, ITC too has undergone a few  name changes. As its ownership became largely Indian, it became India Tobacco  Company in 1970. Then, keeping in fashion of the day, it abbreviated itself to  I.T.C in 1974. That was in recognition of its changing business portfolio,  which by then included hotels. Later it was to add information technology,  packaging, paperboards & specialty papers, agricultural business, foods,  lifestyle retailing, education & stationery products, personal care and  clothing.

And,  further, as if to signify that there was to be no pause in its surge, the  company removed the full stops in its name and became, simply, ITC Ltd on  September 18, 2001.

Analysts  are expecting a special dividend from ITC in its centenary year. In ITC’s 100th  year, Morgan Stanley sees good tidings coming from the conglomerate. In a note  it says it expects ITC to have Rs 3,500 crore in surplus cash as at the end of  the last month. With capital expenditure likely to be lower in the next two  years than earlier estimates, the note adds, “We think ITC will surprise  investors with a centennial year dividend. We have increased our estimate of  the dividend payout ratio from 55 per cent to 67 per cent, implying a dividend  yield of 2.2 per cent for the financial year 2010.

ITC  is mum about the dividend buzz. Asked, an ITC spokesperson said, “It is the  analysts’ view and not based on any management communications from our side. We  do not comment on analyst reports.”

The  Morgan Stanley note continues: “We believe that ITC, like P&G, will be a  formidable new player in personal products. The management’s commitment to this  segment remains strong, and the company is likely to enter skin care in the  next two quarters. ITC has gained shares of 100 basis points in soaps and 20  basis points in shampoos since October, with a significantly higher investment.  Due to better profitability in food categories, however, we expect the  company’s non-tobacco FMCG losses to fall from Rs 360 crore to Rs 270 crore in  the current year.”

Very  few Indian companies have reinvented themselves as ITC has. Realising long ago  that cigarette cannot be its bread and butter for long, given the rising  campaign against smoking, the company first moved into hotels and then into the  FMCG business – both have brought handsome rewards. Even in organisational  matters, it has brought about vast changes. For example, its divisional CEOs  run their businesses almost independently; yet there’s a high level of synergy across  those businesses.

Much  of the change has come about under the stewardship of chairman YC Deveshwar,  who has adopted a three-pronged strategy to continue growth in the years to  come. As ITC officials say the strategy is to “emerge as a sustainable company  with national priorities and further Indianise capital and resources”.

The  company will increasingly focus on volume-based businesses and areas with the  highest scope for direct interface with customers. It will strive to turn as  many brands as possible into market leaders, officials in the know say.

“It  is the right move at the right time,” says Samir Ghosh, former vice-chairman of  ITC. Ghosh spent nearly four decades in ITC and its parent British American  Tobacco (BAT) in the UK and Hong Kong and set up ITC’s corporate planning &  diversification division. He told Financial Chronicle, “The company could  survive and grow for so long simply because of its professional management and  thrust on training and retraining of employees. One of every seven employees is  sent for extensive training and, if need be, re-training. As the company  reinvents itself, its employees are also re-trained.”

He  said the company’s transformation that started in 1968 was not easy or smooth.  “ITC’s overseas shareholders were only interested in the tobacco business. We  had to convince them so that they stay invested in the company. Dealing with  the government on various approval-related issues was not easy either,” he  said.

The  former vice-chairman and director of corporate strategies of ITC said the  recent strategies had been working wonders for the company. “We have all along  stayed away from very high tech areas. Over the years, the company has  concentrated on -- and should continue to concentrate on -- socially relevant areas,  where there are volumes and higher customer contacts like hotel, paper, etc,  and areas where the company can leverage its proverbial distribution network,”  Ghosh said.

ITC  has had legendary people in the chairman’s post – such as AN Haksar and JN Sapru  -- in the past. In the mid-nineties it fought off takeover attempts by the  foreign partner, BAT.

For  six decades after its inception, the focus was solely on cigarettes and leaf  tobacco business; the seventies saw the beginnings of a corporate transformation.

According  to its website, the company’s diversified status originates from its corporate  strategy aimed at creating multiple drivers of growth anchored on distribution  reach, brand-building, effective supply chain management and service skills in  the hotel business.

The  packaging & printing business was set up in 1925 as a strategic backward  integration for the cigarettes business. The hotel business was started in 1975  with the acquisition of a hotel in Chennai. The property was later rechristened  ITC-Welcomgroup Hotel Chola. Today, the company has over 100 owned and managed  properties spread across India.

In  1979 ITC entered the paperboards business by promoting ITC Bhadrachalam  Paperboards, which today has become the market leader in India. Bhadrachalam  Paperboards amalgamated with ITC in March 2002 and became a division. In  November the same year this division merged with the company's Tribeni Tissues  division to form the paperboards & specialty papers division.

In  1990, leveraging its sourcing competency, ITC set up the agricultural business  division for export of commodities. The division is today one of India’s  largest exporters. Ten years later, it started what was then unique and by now  widely acknowledged e-choupal initiative with soya farmers in Madhya Pradesh.  Now it extends to 10 states covering over four million farmers.

Also  in 2000 ITC forayed into the greeting, gifting and stationery product business  with the launch of the ‘Expressions’ range of greeting cards. A line of premium  range of notebooks under the Paperkraft brand was launched in 2002. A year  later, it launched the Classmate brand of notebooks to reach a wider body of  students. It is now India’s biggest notebook brand which includes school bags.  Between 2007 and last year, it launched children’s books, geometry boxes, pens  and pencils too.

Lifestyle  retailing was embraced in 2000 with the Wills Sport range for men and women.  Within two years it widened its portfolio with the men's wear brand, John  Players.

The  information technology business was turned into a wholly owned subsidiary, ITC  Infotech India, in 2000.

ITC  stepped into the foods business in 2001 with a range of ready-to-eat Indian  gourmet dishes under the Kitchens of India brand. Then came the confectionery  and staples segments with Mint-O and Candyman and Aashirvaad atta (wheat  flour). Sunfeast biscuits followed quickly.

The  next move was a logical extension of the food business. Bingo, the snack brand,  came in 2007. In eight years, the foods business has grown significantly, with  over 200 differentiated products under six distinctive brands.

Among  other products launched in the past eight years are safety matches and  agarbattis, the latter in partnership with the cottage sector.

In  toiletry, ITC’s Fiama Di Wills, a premium range of shampoos, shower gels and  soaps came in quick succession in the last four months of 2007. Around the same  time, the mass-market and shampoos were introduced. The higher-end Vivel de  Wills and Vivel range of soaps and shampoos came in 2008.