Inflation remains a key ‘monitorable’ and will hit volumes in the fast-moving consumer goods (FMCG) segment of ITC in the near term. But at the aggregate level, the cigarette-to-hotel conglomerate will continue to record robust profitability this fiscal, chairman and managing director Sanjiv Puri told FE in an interview.
ITC is considering an ‘asset-right’ strategy for its hotel business and exploring foreign markets for its hospitality segment, with the sector recovering fast from pandemic shocks. The Kolkata-headquartered company is weighing alternative structures for its hotel business. The idea is to make the hospitality segment future-ready while ensuring that the conglomerate retains its competitive edge. An ‘asset right’ model typically involves a strategy of owning properties and incremental room addition.
At present, the company operates hotels under brand names, including ITC and Welcome. It has also announced the launch of new brands such as Storii (boutique properties) and Mementos (luxury brand). The group has more than 100 hotels in 70 destinations.
Puri, also the vice-president of industry body CII, is leading a business delegation to the US, accompanying commerce and industry minister Piyush Goyal.
“We (ITC) are optimistic about all our segments because of not just the competitiveness of each of the businesses but also new opportunities identified by us. For example, in the paper business, we are focusing more on sustainable packaging. In agriculture, we are focusing more on value-added products,” Puri said.
As part of its broader efforts to cash in on new opportunities, ITC will commission a spices plant in Guntur next quarter. Similarly, a plant in Mysore to manufacture nicotine and nicotine derivatives (pharmaceutical grade) for exports will be operational this fiscal, he added.
ITC reported a 34% jump in its consolidated net profit in the June quarter from a year before to Rs 4,390 crore. It beat analysts’ estimates and recorded strong performance across segments like FMCG, agriculture, paper and hotel. Its sales in the hotel segment, particularly, saw a sharp rebound — `581 crore in the June quarter from Rs 134 crore a year ago — as occupancy improved after the Omicron onslaught subsided.
Puri said companies across sectors are facing the ‘lagged effect’ of the spike in input costs in the June quarter on margins in the current quarter, which is ‘possibly going to be among the most difficult quarters for the entire industry’. With commodity prices easing now, most companies will have limited ability to pass on the elevated costs of inputs, bought earlier, to consumers in the current quarter.
However, he exuded confidence that ITC will not just pull through it but also put in a reasonably strong performance across businesses.
The recent restrictions on exports of wheat and wheat products won’t really impact the broader agriculture business of ITC, Puri said.
Commenting on the meetings of his delegation with stakeholders in the startup ecosystem in San Francisco, Puri said, “It has been a very productive trip. India has got a vibrant startup ecosystem. So, it’s an opportune time to interact with those in the Silicon Valley because the US is the largest market and has a mature ecosystem. So, the idea is how to learn from them.”
CII, he said, is actually trying to create a bridge so that startups in India not only have access to the US capital and markets but also benefit from mentors here. Moreover, there are startups in the Silicon Valley that are looking at accessing the Indian market, Puri added.
While conceding that inflation remains elevated, Puri said India is still much better than most other economies—both developed and developing. The country has shown ‘tremendous resilience’, despite the pandemic and geo-political conflicts.
The government’s move to scale up public expenditure to crowd in private investment will not only create jobs but kickstart the consumption cycle, Puri said. It will also lay the foundation for elevated growth in the coming years by enhancing competitiveness.