Wings of change are now blowing through the corridors of Virginia House. ITC Ltd, the
numero uno cigarette maker of the country, is now sniffing cash in the fast moving
consumer goods (FMCG) segment.
Buoyed by the initial success, ITC chairman Y C Deveshwar is now aiming at a turnover of
Rs 5,000 crore from the FMCG business in 10 years. The FMCG business of the company had
raked in Rs 22 crore in revenues last year. The fledgling business comprises branded
apparels, greeting cards and packaged ready-to-eat food that was launched recently.
To achieve the target, ITC will leverage its rural sourcing and distribution channel-
e-choupal-which has now reached 6,000 villages.
According to Deveshwar, ITC is setting up four e-choupals a day at an investment of Rs
1.5-3 lakh each.
ITC intends to use this click-and-mortar channel, often referred to by Deveshwar as a
"distribution superhighway", to distribute goods and services, even produced by
others, across the country.
Deveshwar said the company was ready to invest upto Rs 100 crore in its e-choupal
initiative to cover up to one lakh villages within seven to eight years.
The e-choupal project, Deveshwar said had the double advantage of cutting out wasteful
intermediaries, thus providing a better price realisation for farmers and also giving cost
advantage to end users like plants.
Stake in EIH
Deveshwar today scotched rumours about the tobacco giant making a takeover bid on EIH Ltd,
but said the company has made "strategic investment" in the hotel major.
"It is not our intention to make any hostile takeover bid. We do not want to be a
predator," Deveshwar said.
When asked about the purpose behind ITC picking up a sizeable stake in EIH in recent
times, he simply said "it is a strategic investment."
Drought clouds prospects
The drought in Andhra Pradesh and Central India is likely to depress ITC's performance
this year though in the first quarter of the year, the company posted a robust growth-
both in turnover and profit- the effect of inadequate rainfall will be felt over the rest
of the year.
Asked whether ITC was threatened by the drought, chairman Y C Deveshwar said:
"Drought always affects. But it may be a little too early to predict the extent of
the damage. We are waiting for the government to assess the situation. We understand that
the government will assess the damage at the end of this month."
At least two of ITC's key businesses may be affected by the drought: tobacco and its fast
growing agri-business that deals with soya, coffee, wheat, rice, marine products and wood
fibre among others. ITC's paper business too may be affected, though to a lesser degree.
So far the soya business in central India has been a hit. Wheat too has been affected to
some extent., but the drought has no impacted on the tobacco business as yet. "If the
crops suffer- which looks likely- prices will increase, and margins from trading in the
commodities will be depressed," said an analyst.
Turnover up 21%
The company's performance in the first quarter, however, was impressive. It posted a 15
per cent growth in post-tax profit and a 21 per cent growth in turnover.
ITC's net profit in the quarter was Rs 343.92 crore as against RS 298.44 crore in the
corresponding period of 2001-02. Gross income was Rs 2,747.78 crore. Earning per share for
the quarter was Rs 13.90 whereas for the same for the first quarter was Rs 12.06.
Earnings from the tobacco business was 10 per cent higher at Rs 2,204.85 crore, despite
pressure on volumes. Cash flow from the cigarette business was Rs 497.35 crore, 7.6 per
cent higher than the corresponding quarter of the last year.
Substantial growth was achieved in the agri-business. Revenues from the agri business grew
130 per cent to Rs 432.72 crore, and cash flow jumped nearly nine times to Rs 36 crore.
Revenues from the paper and packaging business was 11 per cent higher at Rs 273.5 crore.
Cash flow increased by over 50 per cent to Rs 46.53 crore.
