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Contn. ITC's Big Bang Lighting Up Again
Everyone has a favourite story about those tough times. ITC Bhadrachalam CEO Pradeep Dhobale's preferred anecdote about the expansion-modernisation- restructuring exercise his company undertook in 1998 to improve efficiencies-its results are best seen in the company's latest results, a profit of Rs 34.89 crore-has to do with the installation of what was then the largest paper drum (diameter: 6.5 metres) in the world. It took all of three months to transport the drum from Vishakapatnam port to Bhadrachalam, a mere 150 kms away. The convoy travelled in isolated splendour. When it moved, all other traffic was brought to a halt. Along the way, bridges had to be strengthened and power lines removed and then reinstalled. So, the drum moved at the stately pace of just around a kilometre or two a day. Today, ITC Bhadrachalam boasts the only integrated paper board plants in the country. In the future, Dhobale hopes to aggressively increase the proportion of value-added board sold. This category, typically used in the packaging of FMCGS accounts for 30 per cent of the company's sales; the reminder is what ITC Bhadrachalam calls ''recycled-grade'' board. Dhobale's logic is straightforward: value added board sells at Rs 75,000 a tonne; recycled-grade, at Rs 25,000. And the former is the fastest growing segment of the market (15 per cent). Having successfully turned the company around, Dhobale has now been given a mandate by the board to acquire an existing plant or set up a green field paper board project. ''I've been told that I can spend up to Rs 1,000 crore on this.'' This next-big-leap, should see ITC Bhadrachalam increasing its capacity from the existing 204,000 tonnes per annum (120,000 of this is value-added board) to 400,000 tonnes per annum (the entire incremental capacity will be value-board). In terms of marketshare Dhobale sees this translating into a jump in marketshare from 20 per cent to 40 per cent. Another of ITC's businesses-hotels-also languished during the 1990s. Today, with the new leadership in place there is a refocus on products and markets, says S.S.H. Rehman, Managing Director, ITC Hotels. The most recent initiative has been a segmentation of its business into four categories-the luxury end (ITC hotels), the more broad-based five-star segment (WelcomHotels), the budget category (WelcomFortune) and the heritage hotels (WelcomHeritage)-with which ITC Hotels plans to straddle the market. From the current 41 hotels (owned or managed), ITC will be expanding its chain to 80 properties by 2005 and is projecting a growth in sales from Rs 250 crore last year to Rs 1,500 crore in 2006. Smoking On The Sly
ITC has kept much of its flurry of new activities-be it the roll-out of Wills Sport stores or Expressions greeting cards and gifts-under wraps and away from the glare of the media. Considering the scorching its image took in the mid-1990s, that's not surprising. Yet, on the second floor of Virginia House the signs of the silent revolution are palpable. Anup Singh, Director, explains how the change in culture at the company flowed from the structural changes after Deveshwar took over and how the flagship businesses are now incubating talent for the new businesses. ''We're getting better at identifying which core competencies are lying in which areas and how they can be leveraged in an apparently disparate new opportunity.'' Just behind the 73-year-old Virginia House is a new glass and steel high-rise, ITC Centre, and fittingly, on one its modern floors is where ITC Infotech's headquarters are housed. Infotech was another of ITC's early diversifications but again one where it missed valuable opportunities-back in 1988, ITC Infotech actually lost a chance to partner Narayana Murthy of Infosys-and is quickly trying to recover lost ground. Its chosen market: high-end solutions. Says Sanjay Verma, Managing Director, ITC Infotech, ''While this has meant we had to exit areas like products and body shopping, it also meant the company has a mission.'' Currently, ITC Infotech is restructuring its operations by acquiring two companies promoted by ITC in UK and the US. And Verma is looking towards exploiting the superior domain knowledge within ITC to create business solutions at the top of the value chain. His target: to be a Rs 100 crore company in the next two years and to reduce dependence on ITC. Currently, the mothership accounts for 37 per cent of ITC Infotech's turnover, down from 95 per cent two years back, but Verma wants to reduce that further to around 10 per cent. None of ITC's new forays will be a cakewalk. In lifestyle retailing, Chief Executive Sanjiv Keshava expects ITC's professional management and the big bucks it will invest-it wants to spend Rs 200-300 crore over the next five years-to make the difference. But although the Rs 20,000-crore branded apparel market is growing at more than 30 per cent annually, competition could going to be tough, especially from existing players. However, Keshava says ITC's strategy is different from many of the existing players. ''Most of our competitors have category products, which means they specialise in certain products: either shirts or trousers. All of them have a manufacturing background and, therefore, those are the products they've been able to bring out in the market. We started on a different premise with no manufacturing background, but we source from the best manufacturers in the country. There is an overcapacity, and we are leveraging that overcapacity. We have got our products designed internationally, and we have come out with what is called a wardrobe brand. We are possibly the only wardrobe brand in the country. (Tops, wovens, knits, and bottoms).'' Dalal Street, however, is not particularly concerned about ITC's new ventures. With tobacco still accounting for the lion's share of the company's revenues, that's hardly surprising. Most stockmarket analysts feel despite the drop in cigarette sales volumes, ITC has the pricing power to keep margins high. Says Rajesh Mayani of Morgan Stanley Dean Witter, ''ITC will show strong profit growth (around 17 per cent) and earnings growth of around 23 per cent in the next couple of years.'' In fact, in cigarettes, which generated around Rs 6,000 crore of its revenues last year, ITC's main concerns are not about the bottomline but about the government's proposed restrictions on advertising and the sale of tobacco products. And, of course, the menace of smuggled foreign brands. Says Kurush Grant, Chief Executive, Tobacco Division: ''Incredibly, cheap cigarettes already account for 60 per cent of the kingsize cigarette market in value terms.'' Apart from kicking off initiatives to combat contraband brands, ITC is strengthening its grip on the Indian market. Grant has been constantly upgrading the two megabrands in Wills and Gold Flake and some of the strong regional brands like Scissors. Says Grant: ''We want to be present at every price point with a value-added product.'' In the last five years, ITC pumped in Rs 1,000 crore into its cigarettes business. Now, it plans to invest another Rs 500 crore. A recent initiative: introduction of packs of five to convert some of the estimated bidi smokers who outnumber cigarette smokers by 10:1.
It may be too early to assess how ITC fares in its new ventures, but one thing is clear: its new initiatives will pitchfork it into markets more competitive than the near-monopoly it enjoys in cigarettes. Competitors in branded apparel are numerous; in foods, where Deveshwar says a roll-out could begin in another six months, companies like Hindustan Lever have a head start. Lever has a direct distribution through 850,000 urban outlets plus a 40 per cent cover of all villages with a population of 2,000 and more. And, it has already begun e-enabling many of its stockists and retail outlets. In greeting cards and gifts, there are well-entrenched players-like Archies and Hallmark-to contend with. Yet, as Chairman Deveshwar points out, most of the new areas that ITC is targeting are emerging markets, where the opportunities are still emerging and, therefore, there is room to enter. ''What we are leveraging is our distribution bandwidth. As for the products and services, if it is an emerging market, it makes sense for us to get in on our own; if it is an existing market, we could always think of getting a partner.'' What makes ITC seem more committed to its second wave of diversification is the gleam in his eyes when he says that. -Additional reporting by
Venkatesha Babu, 1 2 |
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