The ITC King’s Gambit
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Image: Amit Verma
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Y.C.Deveshwar, Chairman, ITC
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y the time you read this, the 15-member board of directors of ITC would have swiftly concluded its meeting scheduled for the morning of June 18. The mood inside the board room in Virginia House, the headquarters of India’s largest tobacco company, would have been understandably buoyant. This is ITC’s centenary year. And the main agenda for the board meeting — to discuss the proposal for a special 1:1 bonus share issue — would have been expeditiously cleared.
For Yogesh Chander Deveshwar — Yogi to his colleagues on the board — this would mark the perfect beginning of the end. By the time he steps down in April 2012, he would have spent more than 15 years as chairman, easily the longest serving in ITC’s history. But that’s not a sobriquet that Deveshwar really cares about.
He’s already made it amply clear in media interviews, including one to this magazine, that he’s looking for a longer innings.
On the face of it, Deveshwar may have a legitimate reason: He’s in the throes of transforming ITC from a cigarette maker to a fast moving consumer goods (FMCG) company for the past decade or so. In the last three years, he’s really upped the ante — and taken on a plethora of global and local rivals including Unilever, Procter & Gamble, Pepsi Foods, Britannia, Nestle and Parle Agro, all at one go.
So far, ITC’s non-tobacco FMCG business is just about Rs. 3,700 crore. In this year’s five year rolling plan — a ritual that all ITC chairmen have religiously stuck to — Deveshwar says he’s banking on the FMCG business growing to nearly four times that size (Rs. 12,000 crore) during this period, even as ITC aims for a turnover of Rs. 55,000 crore. (Put simply, the FMCG target is a bit like adding four times Marico’s current turnover.) And quitting in the middle of the surge would seem rather tame.
Clearly, while Deveshwar is preparing the ground for an extension, most insiders reckon the final nod from the board may not come till the last moment. There’s also the seemingly small matter of convincing its erstwhile owners British American Tobacco (BAT) to support his candidature. BAT has about 32 percent stake and two board seats. And the two folks it has picked for the job, Hugo Powell and Anthony Rhys, are both former FMCG veterans from Unilever. And while BAT hasn’t interfered with ITC’s management in the last decade and a half after a failed attempt to take majority stake, it isn’t likely to give in to Deveshwar’s campaign now without driving a hard bargain. Want to know why? We’ll come to that in a bit.
Meanwhile, most rivals who’ve witnessed Deveshwar’s bare-knuckled assault from close quarters are keeping their eyes peeled on the succession issue. For, a change in leadership will invariably affect how the future plans of ITC are carried out. Already, Deveshwar’s aggressive expansion of market share has raised eyebrows both inside ITC and outside. The CEO of a leading Indian FMCG firm, who wishes to remain unnamed, says he is astounded at the kind of money ITC is putting up to buy market share in the personal care business. Soaps and shampoos are among the biggest categories in the personal care space. And in trying to build a Rs. 500 crore business, ITC is said to have lost about Rs. 250-odd crore this year alone.
Where’s the End Game?
A well-known columnist in a leading business newspaper claims she received a call from Deveshwar after she referred to some “illogical” players in the FMCG industry in one of her recent columns. He gently enquired in his avuncular manner whether she was indeed referring to ITC. “What is his real end game? Do you really know?” she enquires, puzzled.
It is a question that holds the key to ITC’s future. Ideally, Deveshwar would want nothing better than to be remembered as the man who helped build India’s largest consumer product firm. After all, reducing the dependence on the not-so-desirable core tobacco business has proven to be no mean task. For four decades, ever since ITC’s first Indian chairman A.N. Haksar took charge from BAT in 1969, every leader has tried his best to diversify beyond tobacco, but without much success.
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