Slowdown is widespread, but uptick in consumption not far away, says ITC boss Sanjiv Puri

The economic slowdown is fairly widespread in the country, and although the government has adopted a slew of reform measures, the effects will be visible only after some time in a large country like India, says Sanjiv Puri, Chairman and Managing Director of ITC Ltd.

In an interview with CNBC-TV18, the high-powered corporate veteran also voiced his concerns about global headwinds that will have an adverse impact on the Indian growth story. “Besides our own concerns that we have internally, we have also global headwinds. There are also vulnerabilities on account of the global geopolitical situation and climate change. That is important to us given that agriculture is very important for India,” he pointed out.

The debate over India's economic slowdown intensified since the central government released data of advanced gross domestic product (GDP) estimates. The figures show that a growth rate of 5 percent is expected in 2019-20. Moreover, the nominal GDP growth rate, considered a closer reflection of the actual status of progress as it is the market value of goods and services produced without being adjusted for inflation, remains at a 42-year low. Even at 5 percent, the inflation-adjusted GDP growth rate is the slowest in 11 years. And not only the declining rate of GDP growth but key indicators also paint a grim picture.

Puri says he is certainly encouraged by the fact that the government is completely focused on measures to revive the economy. “There are attempts to deal with the multiple balance sheet issues and deal with them at the root cause rather than just treat the symptoms and there is also an attempt to revive consumption through various measures,” he observed.

The ITC chairman also draws attention to the impact of extreme weather events. “In the last ten seasons, the larger percentage of the seasons have been adversely impacted by extreme weather events. So this is adding to the stress in the economy and it has impacted growth rates. But we are growing. Compared to last year, the growth rate is a little bit lower,” he observed.

But Puri remains optimistic. “India is a large country and it will take some time for the revival to happen but with the focus on it, I am certainly sure that it will happen sooner than later. India is a consumption-driven economy, the consumption demand is growing at a slower pace now but given the headroom to grow, there is going to be uptick and I remain quite optimistic. That is why, despite the current slowdown we are continuing to invest to enhance our competitiveness,” he added.

ITC is currently investing in hospitality assets and food processing faciltities to increase its competitiveness.

"We have an ongoing investment of Rs 25,000 crore entailing food processing facilities in phase one. The machinery addition will get calibrated, and we are not holding back on infrastructure. We are optimistic that demand will pick up," said Puri.

Owing to the muted offtake and slowdown, The company does not plan to make any big-bang launches in its FMCG business. Over the last couple of quarters, it has added 12 categories and 13 new brands. The focus at this point in time is to consolidate these categories and get into adjacencies within existing brands. ITC has been able to scale up existing brands like Aashirwaad to a Rs 4,500-crore brand, Sunfeast to a Rs 3,800 crore and Bingo to a Rs 2,500 crore brand. These investments and scale-up are in line with the group’s aspiration to achieve its Rs 1 lakh crore revenue target for its FMCG business by 2030.

A big challenge that FMCG companies have been dealing with is volatile commodity prices. Over the last month or so FMCG companies have been seeing inflationary commodity and raw material prices especially in flour, sugar, milk, etc. A majority of the companies at this point are mulling over passing on these price hikes to consumers. "There are some challenges as far as commodities are concerned. There is a possibility for a price hike for sure but will look at driving internal efficiences before taking any concrete steps," Puri says.

Cigarettes, which contributes about 45 percent of ITC's revenues, has been seeing tepid volume growth. ITC says that it's the illegal cigarettes industry that is really hurting the business. "Stability and moderation on the taxes front has proven to be a better tool on a revenue perspective. The biggest challenge is the illegal segment which is 25 percent of the market. It is more of a concern than the competition," adds Puri, who also said the company is working on a new launch in the cigarettes space, without disclosing details.

On its hotels business, ITC is working on an asset-light strategy. Out of the 20 hotels that ITC plans to open in the next few years, 75 percent will be through management contracts.