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"One business derives strength from another"
Outlook Business - 01 Dec 2007

It was a relaxed Yogi Deveshwar who greeted the Outlook Business team in his Golf Links guesthouse in New Delhi on a balmy October afternoon. He had just signed a tripartite agreement with the Government of Nagaland and the Spites Board of India to develop the world's hottest 'Naga Chilli' one of his new rural initiatives. Satisfied with the way his food, paper, paperboard and the personal care businesses are shaping up, he spoke to Sonal Sachdev and Ashish Gupta on how a cigarette company is being transformed into an FMCG behemoth, simultaneously changing the face of rural India. Excerpts:

You have a diverse and somewhat unrelated set of businesses. What was the rationale for getting into them and how do they fit into your future business vision?

We moved into the hotels and paperboard business because it gave us a chance to play out our competencies and because of the policy environment. So we created a diversified conglomerate. Having done that, we are now using it to our advantage. We are linking our ability to source raw materials from the farm and utilising the skills of hundreds of resident chefs of our hotels and our ability in branding, trade marketing and distribution to create a competitively superior value proposition. So you can now see how our food business is linked.

Before us, nobody ever realised that chefs could be a source of competitive advantage. We would not have so many flavours in Bingo or mass customisation of atta if we did not have the sourcing advantage. We are not only buying 18 grades of wheat but also blending them and customising them to local tastes.

Why did ITC stick to the organic route for its foray into new segments?

While we are open to acquisitions, there are really no big takeover targets for us. While it is always possible to make hostile takeovers in the overseas markets, we are not yet ready for it in India. Moreover, most of the Indian companies are promoter-led. We have bought Technico of Australia. We also have 15 % stake in East India Hotels. If he (MS Oberoi) is willing to sell we will buy it tomorrow. But he is not ready to do so.

Have you considered de-merging or spinning off different divisions into separate companies?

People have no idea how one business derives strength from another. Analysts see these as unrelated, different businesses. If the idea was to make the shareholder rich, then one can give the impression that the sum of the parts will be greater than the whole and we could make quick money. ITC gets its competitive strength from the inter linkages. But yes, at a point when each of these businesses become large enough so that the strength they derive from others becomes relatively less than the strengths of the brands, we could spin them off as different businesses.

Is it a deliberate strategy on lTC's part to remain a debt-free company and temper capex to ensure this?

With interest rates being so high, it makes sense to remain a debt-free company. We have capital expenditure plans of Rs 20,000 crore for all our businesses. So the Rs 3,000 - 4,000 crore surplus is only temporary. Hopefully, it will all get exhausted, because if I find surplus cash lying around, then I think, the management is not imaginative enough.

ITC Foods is growing at 60% year-on-year. Is that in line with your expectations?

We are never content with the kind of growth that we achieve. Despite all our efforts, we are unable to grow faster than we are growing today because even we, audacious as we are in our approach, had failed to imagine that we would succeed at this rate.

You've had successes in segments. When do you see your non-cigarette business contributing over 50% of revenue?

I don't know. If the food business is anything to go by, we should reach there pretty fast.

Will the tobacco business continue to launder on the growth front?

While we realise that the tobacco business is not a socially acceptable one, we will continue to be in this business, not only because there is a demand for it but also because the livelihoods of 32 million farmers are dependent on it. There is a slow shrinkage of the company's tobacco business and the future will depend on the policy initiatives of the government. The government should not do anything in a hurry. It should act only after providing alternative livelihood to the farmers.

You have indicated in the past that you'd like all your businesses to have an export component. However, exports are not very big for you. Also, will the new consumer products be exported?

We have made it mandatory for every vertical to export. The reason is not that they will succeed or that there is a huge market to be gained. But it is just to interact with, the finest in the world and learn from thereon. We are exporting our food products, cigarettes, paperboards and over time, the personal care goods too, will be exported. We interact with the developed world because it is a source of knowledge and information for us and helps create benchmarks.

In a professionally run company, succession planning is as important as in a family-run business, if not more. Is there a clear plan at ITC?

At lTC, each business has a Managing Director. So in terms of opportunity, there are lots of it. What better succession planning can there be than people running their own businesses? In other companies there is only one Managing Director and unless you become a Managing Director you cannot 'run your own business. In my own company, there are so many people getting experienced as Managing Directors. Specifically, it is very difficult to say who will be the successor as many of them are in contention.