New Delhi: It’s transition time at ITC Ltd, the Kolkata-based company with interests in cigarettes, packaged food, personal care, apparel, hotels and information technology, as the appointment of Sanjiv Puri, 53, as chief operating officer comes within days of outgoing chairman Yogi Deveshwar’s speech at the company’s annual general meeting (AGM) clearly outlining an upscaling of its non-cigarettes businesses. While the first announcement positions Puri as the likely successor to Deveshwar, the latter points to the challenges he is likely to face in that role.
Puri, a whole-time director of the company, has been appointed as COO with immediate effect, ITC said in a filing to BSE on Monday.
He will be responsible for running day-to-day operations of the company as COO, a position created for the first time at ITC.
With this appointment, Puri, who has been with ITC since 1986, has emerged the front-runner to succeed chairman Deveshwar, who is to step down early next year after more than two decades as chairman. Deveshwar, 69, who will continue as non-executive chairman for at least three years after that, has already set a steep target for his successors—Rs.1 trillion revenue from consumer goods segment (other than cigarettes) by 2030.
This is more than 10 times the company’s current revenues from the segment. In the year to 31 March 2016, ITC reported Rs.9,731 crore in revenue from sale of packaged goods (excluding cigarettes) with a pre-tax profit of Rs.70.5 crore.
Puri’s elevation is not sudden. The process was initiated last year. On 6 December, he took over as executive director, replacing P.V. Dhobale. Before that, Puri was the president of ITC’s packaged goods business that accounts for about 80% of its business.
A graduate of the Indian Institute of Technology, Kanpur, Puri joined ITC in 1986 and worked his way through several functions. His first major break came in 2001 when he was appointed the managing director of Surya Nepal, a subsidiary of ITC, which became one of the largest private companies in Nepal. “Puri is end-to-end ITC guy. He has his advantages. He joined ITC 10 years before Deveshwar took over as the chairman. The long association, knowing ITC from within, and being groomed at ITC will certainly give him an edge,” said an analyst with an international brokerage house asking not to be named.
In 2014, Puri became the president of the company’s fast-moving consumer goods (FMCG) business. After Puri took charge of the packaged goods business, ITC entered the juice segment with the acquisition of the B Natural brand. The company also acquired hygiene brands Savlon and Shower to Shower from Johnson & Johnson.
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Deveshwar, the man Puri is slated to succeed, had expressed his desire to step down from the executive role back in 2011 at the company’s 100th AGM, indicating the plan to put a youthful leadership team at the helm for the long-term interest of the company. But he stayed back to guide and provide mentorship to the next-generation leaders at the request of the company’s nomination and compensation committee and the board.
Since then, ITC readied a pipeline of future leaders. Besides Puri, the list included B. Sumant, president, FMCG business, S. Sivakumar, divisional chief executive, agri business division, Sandeep Kaul, divisional chief executive, India Tobacco Division and V.L. Rajesh, divisional chief executive, ITC’s foods business.
In his new role, Puri has big shoes to fill.
When Deveshwar took over in 1996, ITC was going through crisis—a probe into alleged foreign exchange violation, tax demands and a failed diversification. The diversification plan was redrawn four years after Deveshwar took over. Since then, Deveshwar has worked on turning ITC from being a cigarette maker to becoming one of India’s largest consumer goods companies. Last year at the company’s AGM, he first spoke of targeting Rs.1 trillion revenue from the FMCG business (other than cigarettes) by 2030.
“To reach this (target), ITC needs to grow its packaged goods business (excluding cigarettes) at more than 16% CAGR (compound annual growth rate) for the next 14 years. And in the last quarter, it has grown at just 9.5%, which is too low. It’s tough, essentially because there is pressure on cigarette business and that’s going to grow. Plus, people are becoming more health conscious,” said Abneesh Roy, analyst at Edelweiss Securities Ltd.
It is a challenge that Puri, if and when he does take over, will have to contend with and not merely because it is Deveshwar’s wish. ITC has cash, oodles of it, and more coming in every day from its cigarette business that has a 78.5% market share and accounts for more than 40% of total revenue. The problem is that cigarettes are increasingly a dirty word and profits from that business the equivalent of blood money. This means successive finance ministers keep upping the tax on the business. It is also not enough for the company to diversify. In many ways it already is diversified enough, with close to 60% of net segment revenue now coming from other businesses. These diversifications now have to start giving returns. Puri will have to figure out just how.
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His appointment as COO comes at a time when ITC’s core business is facing challenges due to stiff rise in excise duty and stringent regulations on public health concerns, resulting in decline in cigarette volumes. The hotels and paperboards businesses have also been declining, though agri business has been growing, backed by growth in sales of tobacco leaf. Vitally, profitability of the FMCG businesses is wobbly. Sachin Bobade, analyst with HDFC Securities, believes that the change in leadership won’t have any impact on the company’s balance sheet. “It’s still dependant on cigarettes and that’s going to face more pressure due to regulatory changes and change in lifestyle of people. FMCG, on the other hand, is linked to many things including weather conditions and agriculture. The growth rate that the company is talking about is not easy to achieve,” he added.
Between FY03 and FY16, cigarette contributed about 84.4% to the increase in ITC’s profit, while the paper business contributed about 5.9%, hotels just about 0.4% and consumer goods business around 1.7%, Mint reported on 22 June.
According to Roy of Edelweiss, “ITC’s advantage is its retail network and distribution, its reach. It has in the past decade built quite a few strong FMCG brands, but it also knows there’s need for more brands that could go deeper. ITC will enter each and every segment in the FMCG space in the next few years. Dairy—a more unorganized sector, can be its trump card”.
ITC did not want to comment outside of its statement to BSE.
A Mumbai-based equity analyst, seeking anonymity, said, “frankly, there won’t be any impact. In any case, Deveshwar will be there spearheading things. He is not going anywhere”.
A Kolkata-based businessman who had interacted with Puri has a high opinion of the man. “When he makes a presentation, he is in complete control. He is known as a leader, a strong team player. But the shoes he is getting into are not easy to fill. His toughest challenge will be to maintain the pace of growth at a time when tobacco is not a business for future and packaged consumer products is too crowded,” added the businessman, who worked with ITC in the early years of his career.
Puri could not be reached for comment.