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No Smoke, All Fire in the Belly
The Economic Times - 16 Jun 2011

Tobacco-to-hotels major ITC has set its sights on being India’s top non-cigarette FMCG company. Deveshwar tells ET’s Sutanuka Ghosal his successor will in all probability be an insider, a safe pair of hands. Excerpts:

It’s been more than 10 years since you began your current wave of diversification. What have been your successes and failures?

My first challenge was how to resuscitate our paper and hotels business, especially since our paper business had nearly gone sick. It was a separate company, which nearly defaulted on payments to financial institutions. Our hotels business was also small. The challenge was how to get these businesses to become growth engines. The other challenge was how to get rid of those businesses that were not going to create value for us, like financial services. We ultimately had to get rid of financial services and international trading.

We started with greeting cards. The idea was to add value to pulp, brand it and market it. Subsequently, we found that because of the digital revolution, there was no growth in the paper-based greetings business. We ultimately had to wind up that business. But during that period we had to deploy some artistic and creative talent, which we are now using to grow our stationery and education segment, which is a 500-crore business.

The other one was starting up lifestyle business. Since we were into promoting golf, one of the first things we did was Wills Sport. But we found it too limiting, so we created Wills Lifestyle.

The next was foods. Then we got into packaged ‘atta’, biscuits and confectionery. In fact, we got into every conceivable item progressively. We are somewhat different, as we have competitors in all segments. Perfetti is a competitor, Pepsi is our competitor in the snacks category, we’ve got pasta and noodles competing with Nestle, we’ve had competition from Britannia, Parle, Danone, and now Kraft has come in with Cadbury. We have a range of food products and this is going to continue to grow. There are still a number of items. The whole dairy business is still open.

So you plan to enter the dairy business?

We are going to be India’s No.1 non-cigarette FMCG company. We are by far No.1, if you consider cigarettes. But even without cigarettes, my vision is to be No.1. It won’t happen tomorrow, it won’t even perhaps during my term with ITC. But we are laying the foundation for it to happen one day in the not too distant future.

In foods, we already have two. 1,000-crore brands -- Sunfeast and Ashirvaad. Then there is dairy, coffee, tea, the soft drinks business. But we will touch them slowly. As it is if somebody finds me guilty, it would be of doing too many things simultaneously. It’s my passion to build Indian brands. At the end of the day, if you look at all the top companies other than Bharti, there are no Indian brands in terms of consumer brands.

Why have you not followed the strategy of acquiring brands and companies?

First, we need to see what is available in India. Is it worthwhile? Second, if you see those who’ve built there businesses through M&A route, they’ve got a collection of brands, which for the rest of their lifetime they’ve tried to resolve, by saying ‘these are my power brands, so I will now shrink it’.

We don’t have those issues. We can set our brand architecture. We’ve chosen to keep the purity of our brand architecture intact and then build it for the long term. If we go in for M&A, we will do it for acquiring technology. ITC will always be a company with an Indian soul. Right? We want to invest and grow to create sustainable livelihood for Indians. That’s what we want to do.

What about going global? Is that not an aspiration?

It’s not an aspiration now. The aspiration is to continue to support the growth engines in India and by competing in India and by creating local brands so that we don’t have to pay royalty to anybody. If any Indian consumer is using an international brand, the first thing on the topline goes as royalty payment.

Ultimately, we have to build Indian brands. Nothing goes out, everything remains here. I know it is a tough challenge, an audacious task to fight well-established international players, but it can be done. If you name me some top companies in the world, are they still there? They have all disappeared. By the fifth year from now, our plan is to have. 1,500 crore profit from the FMCG business. Before I give up my executive role, I want this to happen.

Do you have any plan to spin off the FMCG businesses into separate companies, as they have reached a critical mass?

Once GST comes, there will be no advantage of being part of the same entity. Today, there is a disadvantage if you are not part of the same legal entity. Every time you consume something, you pay extra sales tax. Similarly, you can grow a new business and write off the additional losses within the total pool of profit. If you grow a separate company, you lose in posttax profit. But once GST comes along, there is no particular advantage. They can get into the same umbrella. We can get a Tata like structure and then we can get resources by participating in the market.

But as of now, we are cash surplus and there is no need to really to do this. We have not yet become a single market.

Let us now move on to the succession issue. What is the roadmap?

There is no set roadmap. This (the AGM notice which said that Deveshwar may serve as a non-executive chairman for a part of a fresh five-year tenure) has been created as a flexibility.

Has the board set up a search committee?

We have a nomination committee, we don’t have search committees.

Is the nomination committee looking for a successor for you?

It’s not that we are not looking around. It’s not that the nominations committee is inactive. Because this flexibility has been found, and it was at my behest that this flexibility has been brought in, so that I can switch off earlier. My board...you know... was quite happy that I should stay on. But I wanted this.

Why have you sought the flexibility this year and not next year?

My election is coming this year, so we thought to bring in this flexibility. During the next five years, I may chose to relinquish my executive role. It (the AGM notice) says ‘may’. So it’s flexible.

Will your preference be to choose a candidate internally?

Yes, yes...without doubt. He will be chosen from inside. My first objective is to find safe hands for the company. Everything that follows is secondary. Nothing else is more important for me than to find a pair of safe hands.

So the three executive directors will logically be the preferred candidates?

Why not? Why not? Well...you are trying to read (laughs). You have to find safe hands. No matter what the man’s earlier background is. I have done nothing by myself. Nobody can run this company single-handedly. This company has to be run by chief executives of different businesses. The man in my position has to govern to ensure that there is commitment to values of the company. Then, there are processes to sustain vitality and to re-energise the company from time to time. That is a compelling vision that is driving the company forward. There are mechanisms of accountability. There are good strategies and good people in place. And, of course, you require bandwidth to be able to do this. Then you need elasticity of bandwidth. So these are some leadership qualities that are required. We will be searching for people to be groomed.

So, when do you find one?

At the moment, the playground is open.

What is the outer time frame for choosing a candidate?

Five years.

Will the successor takeover as CEO?

Yeah. He could. There can be various models. The first step could even be the executive chairman and a CEO, like many companies have. We have not yet decided. It could be. You read it as flexibility at first. I have been on the board for 12 years (1984-1996) and had run almost all businesses, and Air India. When I started, the company was smaller. But it is now more complex. If you look at it, each of our directors is actually in the nature of a managing director of managing directors. So they have just come out of a single product role to a multi product role with a number of chief executives reporting to them. This is a grooming process, and it has just begun.

Supposing if somebody like one of your executive directors take over and you become the non-executive chairman, what would be your role? Would it be like a mentor?

Actually, my role even now is of mentoring. Honestly speaking, even my current role as the whole time non-executive chairman for all businesses. So, this has been stated there (in the AGM notice), it is a mechanism of slow fade away, but not with a jerk. Even now, not only I, even my executive directors, three of them, are in the nature of non-executive vice-chairman, because the managing directors and chief executives are actually the guys who are running the businesses. It is a matter of saying that I am still there-...so light touch...even lighter touch. So there is some sense of continuity.

Is it fair to say that the executive director in charge of the FMCG business (Kurush Grant) is the front-runner?

This is speculation. For me, all three are equal..we will see later.

Will BAT have a role to play in this succession?

This is truly a board managed company. No decisions are taken outside of the board. No shareholder is consulted before the board meeting. It is not like that the shareholders have discussed things before going to the board.

Would you say that making ITC a genuinely board managed company is your greatest achievement?

That is only one aspect. But yes, governance of a multi-business conglomerate by enabling and harnessing diversity and creating unique sources of competitive advantage is my greatest achievement. Ultimately, it is the Triple Bottomline Outcome. No other global company has done this. It is a huge differentiator as you go to the future. When this global warming thing becomes large, then a company like ours will be preferred by consumers, investors and everybody. We have created huge number of sustainable initiatives through our e-choupal, social forestry. Many tribals have benefited. Economic return to the society is important. Going beyond quarterly results is the real challenge. Our company has big role ahead towards the Indian society and ultimately everybody has to fade away but putting it (the company) into the safe hands is important.

No interview can be over without talking about EIH hotels. What is your stand?

The media has made it so. We have always said that we are investors in EIH. We had bought shares of EIH at. 35 per share or below that. This investment is of great value. We had surplus funds, so we invested in it. We have already gained. 500 crore. That’s it.

Is it not the time to cash it out?

We don’t need it just now. We will see it if required. From the first day, there is no intention of hostile takeover. I have also said simultaneously, there is a great synergy possibility but that has to be seen by both the sides. Obviously, the other side has not seen it. So be it..there is no problem.

What about your investment in Hotel Leela Venture?

Same. I don’t know why people are so excited...he (C P Krishnan Nair, the promoter of Hotel Leela) has got more than 50% of the shareholding. Why should people really get excited about it...I have no idea. If I invest in some petroleum-related business about which I have no idea, I will have no clue about my investment. We felt that it is going at a reasonable price and so buy it. And worst comes to worst, the synergy possibility is there. Assuming that something goes wrong, we can resurrect...so it won’t go waste. So that is the logic for doing this. How can one with 40% or 50% shareholding ever think of being taken over? After making an open statement that there will be no hostile takeover, how can I go in for a hostile takeover? That’s not my intention.

Are there any businesses in ITC now, which you think, you should get rid off?

No, not just now.

What about ITC Infotech?

No plans. It’s not a drag. It’s positive.

What are your plans for ITC Infotech? Are you disappointed with its performance?

I expected it to grow faster. But we see how a chief executive runs his business..is he excited or not? It has additional benefit to us because it makes ITC digitally competitive. Otherwise, many companies give out IT. It’s like giving your heart to somebody for maintenance. So we maintain our own heart. It’s basically like that. It’s of great value...we can always market it. But there is no reason to do that (now).

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