Turning down any possibility of a demerger of its different businesses, ITC chairman Sanjiv Puri on Friday said the present structure of the diversified conglomerate “makes sense” as it was “creating synergies out of diversities”.
Addressing shareholders during the cigarette-to-hotel-to-FMCG major’s 108th annual general meeting in Kolkata, Puri said, “The whole philosophy of ITC has been to create value out of the businesses within the system. We are able to create a lot of value (for the shareholders). Therefore, it makes sense to operate this way and benefit from the synergy that we have from the diversity.”
Earlier, shareholders were suggesting the conglomerate to review whether the former were better served by single entity or by creating several entities.Talking to the media later in the day, Puri explained that segregation of different business verticals of the Kolkata-based conglomerate would increase logistic and manpower costs, and costs to build distribution chains.
In his maiden address to ITC’s shareholders after taking charge as its chairman and managing director in May, Puri said the company would examine entering into various categories in the FMCG space, where “there are institutional capabilities” and there were “chances to win”.
The company is looking at an “eight-fold jump” in its turnover from its non-cigarette FMCG business. Currently, around 25% of ITC’s segment revenue is from non-cigarette FMCG business.
Notably, an eight times jump would take the company closer to its target amount of Rs 100,000 crore turnover from its non-cigarette FMCG business from the current around Rs 12,000 crore.
Puri said ITC has already put in money into alternative investment funds, which in turn will be investing in start-ups. He, however, did not share the amount of investments made in these funds. This apart, the conglomerate is also open to make direct investment in start-ups, primarily in the FMCG segment.
“The company is currently working closely with some start-ups and if required we may take a decision to invest in them directly,” he added.
On the company’s apparel business, the chairman said restructuring of it was expected to be completed by the end of this financial year. Post restructuring, the company will take a call on future plans there.
“The strategic fit of apparel within ITC is amongst the weakest. We have been unable to scale it up too much,” he stated. From 140-odd stores, the number of stores under the premium WLS brand has come down to 65-70 now.
Talent scheme for employees
The ITC has come up with an employee stock appreciation rights scheme (EASR) after its special resolution for issue of employee stock option (ESOP) was defeated last year. Talking to reporters, Puri said ESOP was a “preferred choice” for the company when it came to retaining talents. “The ESAR scheme impacts the cash position of the firm. But, ESOPs don’t,” he said. “ESOP is the best way to retain talent. If that isn’t available, then we may look at a cash-settled ESAR. In this, the non-cost cash that was there becomes a cash cost,” he explained. Firm said calculations showed that cash impact of ESAR scheme might be to the tune of Rs 300-400 crore.
“There will be no impact on the company’s bottomline, there will some effects on its reserves and liquidity,” the chairman added. Earlier, British American Tobacco (BAT) had defeated a special resolution by ITC to offer employee stock option scheme (ESOP).