ITC Ltd will continue to aggressively grow its non-cigarette business, Chairman Y.C. Deveshwar said, adding that a Rs1 trillion target for the business in 15 years is not beyond its reach. ITC has in the last fortnight entered the juice market and will roll out its dairy products within a year, he said. Coffee is the next big bet for the company that wants to be in “any category that can be classified as FMCG” (fast-moving consumer goods), Deveshwar said. Edited excerpts:
Q: Are you bracing yourself for the fourth consecutive excise duty hike?
A: We are all hopeful of a much more progressive Budget than we have been accustomed to in the past. I hope that it will be a moderate Budget as far as taxation is concerned because evidence very clearly is that more you tax cigarettes, more consumption goes on to cigarettes that are contraband or goes on to other forms of tobacco consumption. So, there is a loss of revenue and there is a loss to the Indian brands.
Q: While you have been able to pass off the excise duty hikes by way of price hikes, people believe that it will now, any further hikes will come at the expense of volumes which has been declining - seven quarters of decline in cigarette volume. Where will you go from here?
A: We will continue to build other businesses. If this is what our country wishes to do, is to shift cigarette consumption to contraband cigarettes, even American cigarettes don’t have pictorial health warning. They have a health warning on the side.
I can take you to the street corner, you can find American cigarettes sold without a pictorial health warning. So, consumers will begin to pick up those cigarettes. We still have duty-free cigarettes for travellers that come in and there is a source of leakage of cigarettes into the Indian market.
If we want to close our eyes to all that is happening and we don’t mind if cigarette consumption goes over to contraband and we continue to have duty-free cigarettes but we want to milk it, however, that milking is no more feasible now because the tax base has shrunk. 85% of all tax collection is from cigarettes which are 12% of the tobacco consumption. This is what has been happening, we have been forming policy in silos. If we look at health only, then we frame policies without looking at anything else.
Q: So, you believe cigarettes are being unfairly targeted and the tax should be across the board?
A: Yes it should be across the board. Somebody needs to look at the totality and this is what I have been saying.
Q: Let’s look at the growth of the FMCG business in 2002; the cigarette business was about 80% of revenue, down to about 60% in 2014. The FMCG business was 1% in 2002 and today it stands at 20%. Clearly this has been something that you have been driving and you have put your might behind it. How confident are you feeling about the strength of the FMCG business, what are the next targets that you have set for yourself?
A: We are into our next phase of strategy. Our first phase was to do product development and get consumer franchise. However, now we are laying out an infrastructure for logistics and manufacture for lowest cost delivery to the consumer which over a period of time, once gets implemented, it would be irresistible – this business.
In the next 15 years a Rs 1,00,000 crore of FMCG business is not beyond the reach of this company.
Q: You have big plans for the IT business? Are you making a bet on IT like you did on FMCG more than a decade ago?
A: This area is going to grow manifold and there is room for niche players, high-end niche players, there is room for those. In every segment of the market, there is a high-value-added end of the market that you can occupy, you can specialise in areas. We have a got a new CEO and she is very confident that we can grow this business. I think it will be a long haul but it can be a very profitable area where you can operate in niches and can create high value. Sushma Rajagopalan has got the remit to look at both avenues of growth.
Q: What about hotels? The downcycle in the economy hit that business but as things pick up do you have big aspirations for the hotel business as well?
A: Hotel business is the part of the tourism business. This business has enormous potential to create jobs. We are in this business to grow. In the next 15 years, we should double the size of our hotel business.
Q: Your peers are looking at overseas expansion, buying hotels abroad.
A: My belief is that unless you bring something to the table that is superior to that incumbent is able to bring to the table, there is no point in going overseas. I don’t see what I can bring to the table if I have to go to the US or Europe. So it will have to be here (India). Whatever ITC’s capital does, it must do in the interest of creating jobs – jobs in India for the Indian people.
Q: Take us through some of the key launches this year for the FMCG business?
A: ITC’s businesses are very complex. I can’t give you answers… Juices is the big story this time. We have a unique jamun juice. I am told it is already going off the shelves in Bengaluru. Incidentally, juice business has a huge potential. It uses the same backend strength which we used for our ‘atta’ business. Agri business is the one which is going to do the sourcing for pulp. There will be no preservatives, no artificial colour and flavour. Dairy Products is a backend-based business. In the initial months, we will do institutional sales. Over a period of time, we will come up with branded products. Backend differentiation will take time. Coffee and tea is on the cards too. We hope to foray into the coffee business this year.