Big plans. ITC to invest $2 billion over medium term

Diversified conglomerate ITC Ltd will invest $2 billion (₹14800 crore) over the medium term as it looks at capacity ramp-up across verticals that include fast moving consumer goods (FMCG) businesses, packaging and agri-business, and funds new growth areas.

The investment will be “over and above” the acquisitions it plans in the FMCG space.

According to Sanjiv Puri, Chairman, ITC Ltd, the investments will include setting up new plants, adding new lines to up-manufacturing, upgrading qualities, and in “new growth areas” – such as the proposed super-app covering its entire gamut of agricultural solutions. Scaling up the food processing vertical – a segment the company is focusing on – will also be covered.

Some Greenfield projects include commissioning a state-of-the-art spices factory, that will be leveraged for processing produce, targeting both domestic and export markets; setting up a packaging plant at Gujarat, and a nicotine derivatives manufacturing facility at Mysuru (targeting export markets in US and the UK), among others.

Also see: ITC reports business recovery despite ‘near-term risks’ due to Covid

Agri-exports constitute 56 per cent of ITC’s aggregate forex earnings of $7.3 billion over the last 10 years.

“The $2 billion investment will be on a medium term horizon, say about a few years. It will be for capacity gearing-up; getting into new growth areas; the launch of the super-app, reducing plastic consumption and so on. It will cover FMCG, paper, agri and so on,” Puri said.

However, he did not single out investment towards the non-cigarette FMCG-others category, but said a “lot of steps” have been taken to revitalize the portfolio. The company “may not get into too many categories”, but would “scale-up in existing ones”, such as frozen foods.

Business Recovery

ITC increased its rural distribution, doubling the number of stockists, and so “did not see a very significant drop” (during the second wave) in rural sales. Urban markets, meanwhile, are recovering “sharply”.

The demand for hygiene products is at an elevated level, though lower than during the first wave; sequential recovery is clear across categories like staples and discretionary ones.

Unlike the first wave of Covid-induced lockdowns, there was no pantry loading this time.

According to Puri, there has been a month-on-month improvement in sales in July and August, and “early signs are positive”.

“There will be some upstocking after re-opening and we are watching that. As of now the early signs are encouraging,” he said.

Cigarette sales have seen a week-on-week improvement but are yet to touch pre-Covid levels. The company is also working on bettering the quality of its cigarettes, besides introducing consumer offers. Cigarettes account for over 40 per cent of its annual revenue and 70-80 per cent of its profit before tax.

Hotels Business

Having announced an “asset-right” strategy for its hotel business, Puri said the company is focusing on management contracts led by the ‘Welcom’ brand and its newly launched offering, ‘Stori’.

The company is under discussion for “5-7 new properties under the Welcom” brand while 6-7 have been signed for the current year. In the near-term, it plans to have a total of 34-35 hotels under this brand.

“In the medium-term we will double the hotel count,” Puri said.

ITC is also in discussion with property owners to come up with 4-5 new hotels under the new nature-based tourism hotel brand, Stori.

The properties – Colombo (Sri Lanka), Bhubaneshwar, Ahmedabad and Guntur - which are nearing completion, were planned 5-6 years ago. Apart from Sri Lanka, the company received interest in “managing properties”; but plans were scuttled due to the pandemic. “We will look at them at the right time,” said Puri.

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