regular-article-logo Thursday, 28 September 2023

To unlock shareholder value, ITC may list non-tobacco businesses

According to chairman and MD Sanjiv Puri, the company remains wedded to its fundamental business strategy of creating sustained value creation over the long term

Sambit Saha Calcutta Published 15.12.21, 01:44 AM
Representational image.

Representational image. Shutterstock

Cigarette-to-hotels conglomerate ITC is open to the idea of unlocking shareholder value by listing its non-tobacco businesses like hotels, infotech and fast-moving consumer goods but will not be persuaded to rush into “anything for short-term” gains.

Chairman and managing director Sanjiv Puri told an investors conference on Tuesday that the company remained wedded to its fundamental business strategy of creating sustained value creation over the long term.


“Nothing is cast in stone,” Puri said at its first investor conference that was held to articulate the company’s views on a wide range of issues at a time when top executives of the company have been fretting over continued underperformance of the stock which has tended to lag its FMCG peers.

ITC was at pains to try and explain that the company was looking to expand beyond cigarettes and into a new dawn of digital-ready businesses.

While there has been a growing clamour to demerge the behemoth by business verticals, especially the profitable and fast growing non-tobacco FMCG, Puri suggested that such a decision should be taken in the context of business maturity and from the perspective of value creation.

“From this point, we are certainly open to seeing what is right to create value for shareholders. And these are things we evaluate from time to time. But when we evaluate, we certainly look at the maturity of the business, the business context and fundamentally look at what is required for sustained value creation,” Puri told investors in response to questions on demerger of the non-tobacco FMCG business.

He pointed out how the company had already articulated an ‘alternate structure’ for the hotels business in FY20 and said the management was committed to the idea. It was suggested that such a scenario could play out when the hospitality sector recovers from the Covid pandemic.

Puri explained how ITC had leveraged institutional synergies to build the non-tobacco FMCG portfolio, comprising mainly food and personal care, at a lower cost. He said the paper and hotel businesses used to be separate but they were brought together for a purpose.

Shareholders were informed that the company might look at listing ITC Infotech, a wholly owned subsidiary of ITC. “ITC Infotech is a 100 per cent subsidiary and listing is certainly a possibility and these are issues that we examine from time to time,” Puri said. The company management also said it would look at acquisitions both in the space of infotech and FMCG.

Capex plan

ITC will invest Rs 10,000 crore over the course of next three years in the areas of FMCG, paperboards and hotels.

Abneesh Roy, executive director of institutional securities at Edelweiss Securities Ltd, noted that 35-45 per cent of the capital expenditure will go towards FMCG to improve capabilities. “The next big user would be paperboard, around 25 per cent, which is a capacity led growth,” Roy said in a note.

Hotels would see around 10 per cent of the capex after which it would taper off as ITC intends to follow an asset light model.

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