ITC Ltd’s fast moving consumer goods (FMCG) business has turned cash-flow positive and has been making good progress in recent years, according to the company’s Chairman and Managing Director Sanjiv Puri.

Margins in the ₹15,000-crore FMCG segment, which accounts for 31 per cent of ITC’s turnover, are rising even as the company is aggressively expanding into newer categories in foods and personal care.

“Our FMCG business ( minus acquisitions ) is now cash flow positive. Margins are up by 640 basis points between FY17 and FY21 while turnover has grown from ₹10,000 crore to ₹15,000 crore in the same period,” Puri told Business Line in a wide-ranging interview at the company’s Virginia House headquarters in Kolkata.

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The essence of Puri’s responses was that ITC’s investment phase in FMCG and hotels is nearing completion and payback has already begun.

The company has been panned by analysts for burning cash spewed out by its lucrative cigarettes business in the low-margin FMCG and capital-intensive hotels segments. The cigarettes business accounts for 42 per cent of ITC’s turnover but pulls in over 80 per cent of its earnings before interest and tax. In comparison, the FMCG segment contributes just under 6 per cent to earnings and has absorbed a major share of the company’s investments in the last several years along with the hotels business.


Funding on its own

Puri emphasised that while investments would continue in FMCG, the segment is now capable of funding them on its own. Answering criticism over the low margins, Puri said: “Our portfolio today has some brands that are standing on their own feet and generating surpluses. And some brands that are in investment mode. That’s why net-net our margin is not similar to industry.”

He said the idea was that as the established brands progress, they will generate value which will be deployed to create newer brands with some part retained as surplus.

“Our strategy would be to see that the net surplus keeps on increasing. We want to grow with year-on-year margin improvement of about 100 bps,” he said.

Puri said the margin expansion strategy was underpinned by scale, mix enrichment, bringing in back-end efficiencies and leveraging digital.

On the hotels business, Puri claimed that margins were actually the best in industry. “Our depreciation is high, but profitability is better,” he said.

Thrust on IT business

The IT business, housed in wholly-owned subsidiary ITC Infotech, is getting “a lot of thrust and support” according to him. He said the company is open to acquisitions in the IT space to grow and is “very committed” to the IT business.

Puri did not rule out listing ITC Infotech saying: “We shall see. We keep evaluating these things from time-to-time.”

Investors and analysts have been urging ITC to unlock value by spinning off some of its businesses and listing them. Asked if he agreed with them, Puri said: “In the FY20 annual report we had said that we will look at an alternative structure for the hotels business. The issue of how we organise ourselves also depends on what will create a sustained value to all stakeholders. It is a question of business context, maturity, and strategy. Nothing that way is cast in stone.”

Puri was equally philosophical answering a question on the ITC stock’s poor valuation. “Our role is to create sustained value. Between FY17 and FY20, EPS went-up by 47 per cent, ROCE (return on capital employed) went up by 1100 bps. Of course, it is a matter of concern (stock pricing); and I have said it in the AGM too. From a management perspective, I think the right things to do are create sustained value, grow newer segments, deliver superior performance and be competitive.”