ITC to review plans on ‘alternate structures’ for hospitality business

ITC Ltd chairman and managing director Sanjiv Puri said plans to create “alternate structures” for the hotel business will be reviewed but the timing will have to be thought through given the impact of the pandemic on the hospitality sector.He said in an interview that the Indian economy has bounced back ahead of expectation and private investment is likely to pick up pace soon with the government providing enabling factors. Sectors that were badly hit such as hospitality, tourism and education are moving toward recovery, which will gather pace as vaccination progresses.Puri said the private sector is keen to lend support to the government’s Covid-19 vaccination drive and help speed it up.The chief of one of India’s largest private sector conglomerates said the company expects cigarette business volume will recover in 2021 due to stable taxation, though it may scale down the lifestyle retail business due to lack of synergies. “The lifestyle retailing business has shrunk considerably, as it was not delivering the desired results. Most of the stores are closed except a few inside the hotels and a further shrinking is being evaluated,” said Puri. 81144267ITC’s share price hit a 52-week high of ₹239.15 earlier this month after the government didn’t raise taxes on cigarettes in the February 1 budget, but is still under-performing FMCG peers such as Hindustan Unilever and Britannia. At Friday’s close, the stock dipped 1.35% on the BSE to ₹215.95. Global tobacco stocks including ITC have borne the brunt of environmental, social and corporate governance (ESG) concerns, triggering investor expectations of the company hiving off businesses such as hotels into separate entities.Puri said ITC will pursue an ‘asset-right’ approach in hospitality. By asset right, ITC intends to expand its hotel business primarily through management contracts instead of investing in building new hotels, which it expects will generate higher returns. “Concerns from investors have been mainly on ESG, where ITC is an exemplar, and on taxation which gives a spurt to smuggling of cigarettes, at the cost of the legal industry,” he said.‘Co’s Performance has been Robust’ITC’s performance has been robust, be it the 47% jump in earnings per share in past three years or return on capital employed going up by over 1,000 basis points in the same period until FY20, said Puri. “FMCG profitability has been progressively improving and continued this year too with ebitda touching double digits if the recent Sunrise acquisition is added,” he said.The company’s innovation agenda will be driven by the two pillars of sustainability and digital, which Puri says are the two most defining trends of the decade that got accelerated during the pandemic and will have a profound impact on industry. In FMCG, ITC will continue to invest in areas such as health and hygiene, ‘good for you’ products, nutrition, convenience foods, ready-to-eat, ready-to-cook and indulgence categories.Record FMCG LaunchesITC has already launched a record 100 new FMCG products this fiscal, Puri said. As FMCG consumption normalises from a period of surge due to pantry loading, some moderation is expected and launches could stabilise next year at the 50 or so new products that ITC does in a typical year.ITC, which runs the country’s second-largest hotel chain, has seen improved hotel occupancies in the third quarter with a pick-up in leisure travel, staycations and food and beverage business. “This will be a sector which will take longer to recover but the trajectory will get strengthened when sufficient numbers of people are vaccinated,” said Puri. Puri said ITC’s long-term strategies have not changed due to Covid and hence investment plans are intact though there may be some short-term rescheduling or recalibration due to the lockdown. The company is currently investing in FMCG manufacturing plants, the paperboard business and completion of hotels in the pipeline.Economic RevivalThe government’s focus on capital expenditure on infrastructure and other measures announced in the recent budget will create livelihoods, strengthen competitiveness and put growth on a firm trajectory, said Puri.“Together with the policy thrust on agriculture provided earlier, it will trigger a virtuous cycle of consumption and investment, improving farm incomes,” he said“The worst is behind us and I am optimistic. The future is looking much brighter as reflected in the high-frequency indicators and forward projections of GDP. I am confident that this recovery will sustain, looking more like a V-shaped recovery unless Covid puts a brake somewhere,” he said. While private investment is currently muted, Puri said he’s hopeful it should pick up sooner rather than later as capacity utilisation improves and with enabling factors for investment such as revision in corporate tax rates, production-linked incentive schemes, low interest rates and improvement in corporate earnings in place.
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