ITC Ltd (NSE: ITC) Institutional Investors and Financial Analyst Day dated Dec. 14, 2021
Corporate Participants:
Karthik B — Head of Corporate Planning
Sanjiv Puri — Chairman and Managing Director
Sandeep Kaul — Divisional Chief Executive of Cigarettes Business
Hemant Malik — Divisional Chief Executive for Branded Packaged Foods
Sameer Satpathy — Divisional Chief Executive – Personal Care Products
B. Sumant — Executive Director
Nazeeb Arif — Executive Vice President & Head, Corporate Communications
Supratim Dutta — Chief Financial Officer
Presentation:
Karthik B — Head of Corporate Planning
Good morning, everyone. On behalf of team ITC, let me extend a warm welcome to this exclusive event, ITC Institutional Investors and Financial Analyst Day 2021.
We have an exciting lineup of presentations for you today. We begin with the presentation by our Chairman and Managing Director Mr. Sanjiv Puri on ITC Next strategy. Then we have three business presentations: by Mr. Sandeep Kaul, Divisional Chief Executive for cigarettes business; by Mr. Hemant Malik, for the branded packaged foods business; followed by a break for 45 minutes; we then resume with a presentation by Mr. Sameer Satpathy, Divisional Chief Executive of the Personal Care business. Thereafter, we have brief presentations in two areas that run horizontally across all our businesses and have emerged as defining trends in the new normal; one on digital powering the ITC Next strategy by Mr. B. Sumant, Executive Director; and last but not least, Sustainability 2.0 presentation by Mr. Nazeeb Arif, Executive Vice President and Head, Corporate Communications.
It is recommended that for the best experience the presentations be seen on full screen mode.
Before we kick off on the agenda, before us a few admin details. We’ve reserved about 50 minutes to an hour at the end for the Q&A session. You would have noticed an icon on the right side of your screen for questions. Please use this to post questions on the chat box. The chat box is already open now, and we will take questions until the end of the Sustainability presentation. If you are in full screen mode, you would need to exit that briefly to post your questions to access the chat box.
After the presentations are done, we will take a very short five to 10-minute break and reassemble for the Q&A session where Chairman and Managing Director, Mr. Puri, will be joined by Mr. Rajiv Tandon, Executive Director, and Mr. Supratim Dutta, Chief Financial Officer.
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Without further ado, may now invite and request Chairman and Managing Director, Mr. Puri, to take over for the first presentation.
Sanjiv Puri — Chairman and Managing Director
So, good morning, ladies and gentlemen. I just want to do a quick check. I hope I’m audible. Okay. All right.
So, may I at the outset first welcome all of you to the investor meet today, and I thank you for being here and participating in this event. In the next 60 minutes, I’m going to cover a overview of the ITC Next strategy. And following that, in certain specific business segment, some of my colleagues will, of course, detail out some facets a little more. There isn’t time to cover every facet today. Hopefully, we will have another occasion to cover the pieces that we may not be able to cover today given the duration of this event.
You’re all familiar with our portfolio, which spans agriculture, manufacturing and services. There are essentially four segments. The largest is FMCG, which also includes our traditional business of cigarettes, where we are the market leaders. We are also a leading — a leader in the agri business segment. We are also the leader in paperboards and packaging. And the second largest chain in hotels, but a leader in green hoteliering.
Over the last two decades, we have been investing on multiple drivers of growth and I’ve tried to — and have created newer businesses where we are leaders already. And over the last two decades, our top line in the non-cigarette businesses have gone up by 20x, bottom line has lagged 18x, essentially because a large component of the growth also comes from the newer FMCG businesses which are being built, of course, we are seeing improved margin trajectory. So, we do hope going forward that the equation will be different. And as I said, we are already leaders in our older businesses, be it, cigarettes, agri, paper and hotels, not only merely from size, but also from a profitability perspective. Of course, there is an angle of capital productivity on hotels which I will address going forward. And in the FMCG other businesses, we have made appreciable progress. We are already the second largest player in the industry.
We are also an exemplar in triple bottom line; exemplar in sustainability; we are carbon positive, the only company in the world to also be water positive and solid waste recycling positive for 16, 19 and 14 years in a row; our livelihoods — our value chain support 6 million livelihoods; the e-Choupal empowers 4 million farmers; 41% of our total energy is from renewable sources; and we are a trailblazer in green hoteliering; we have a large bank of platinum rated green buildings, in fact, the world’s first green datacenter LEED Platinum rated is the ITC Sankya at Bangalore.
Some more recent accolades. The ITC PSPD Kovai unit, and this is important because India is a water-stressed country, is the first factory in India and second in the world to receive the platinum certificate for AWS, which is Alliance for Water Stewardship. ITC Windsor has become the first hotel in the world with LEED Zero Carbon Certification. ITC Chola is the largest hotel and commercial building in the world to achieve the same distinction. And we have top-notch ESG credentials: a AA rating by MSCI ESG, much ahead of global tobacco; we are part of the Dow Jones Sustainability Index; an A minus rating by CDP, but a leader as far as climate change is concerned against a global average of B and similarly in water security. We have received global recognition for our work in sustainability. We have set exemplary governance standards. Last year, we were recognized as the best governed company by the Institute of Company Secretary. And in 2017, we were recognized with the Porter Prize for Excellence in Corporate Governance and Integration.
We have consistently been in the top league in terms of PBT and PAT. The last year, one, one rank reduction may also be attributed to the impact that some of our business had on account of the disruptions. We are amongst the top three contributors to the exchequer over the last 10 years. Our cumulative value add is INR4.1 lakh crores, out of which 71% has accrued to be exchequer and 23% has gone to the providers of capital and 5% to employees.
India certainly offers a very compelling growth story. And I’m sure all of you are already familiar with it, but a quick recap, we are going to be the fastest growing economy this year and the expectation is, next year will be the same. Our demographics are very favorable. We are a relatively young country. Even in 2050, it’s going to be a reasonably good situation. And with the growth of the GDP will come prosperity, which will impact consumption and there is huge headroom for consumption growth in India. India is a consumption-driven economy. In FMCG, particularly, the per capita consumptions, the penetration levels are significantly lower. And the box at the bottom gives you the comparison with this some other countries, and that really depicts the kind of potential that exists. And of course, there are array of reforms by the government that are going to strengthen the growth momentum. Some significant ones to call out is Gati Shakti, it is also the interventions in digital, the PLI scheme, the reform in the financial sector, all this are going to land additional strength to the economy over time.
Let me now move on to the — our corporate strategies. We have a strategy — we have six pillars of our strategy. The first is our commitment to create multiple drivers of growth by marrying the market opportunities by with our enterprise strength, really saying we will go in spaces where we have a right to win. And we recognize that digital and sustainability in the same context are going to be mega trends of the decade. So, we are actively exploring and developing opportunities in this spaces where we have a right to play, given our enterprise strength, and I will allude to some of this as we go forward. Our growth is going to be supported broadly by five corporate strategies, besides the business specific strategies, which I’ll cover a little later.
Innovation is a theme that will run a right across. Cost optimization, looking at the entire value chain with rigor is another theme that will run right across. Sustainability 2.0 captures our ambition that is bolder, given the global challenges we have raised the bar. Digital, as I said, is a mega trend. So, our aspiration is to be a future tech enterprise, and we will talk about what that means for us. And the most important facet of our strategy is really creating the world-class talent, the most valuable resource that is going to drive the enterprise.
We create multiple drivers of growth, leveraging institutional strengths, so that we have — we move to the market with some moats and a right to win. And a good example just to illustrate this is foods where the strength in agri business, the strength in cuisine from hotels, the strength of distribution, the strength of research and development amongst others comes together and provides a strong platform for us to succeed in foods. Now to manage such diversity, there needs to be an appropriate strategy of organization that will enable focus on each business, which is at a divisional level, each division has a Chief Executive assisted by a team as part of the Executive Management Committee. And the CMC, the Corporate Management Committee, takes the role of strategic management, sets the goals, the agendas, mentors the businesses, looks at succession planning, allocates resources from a venture capitalist kind of mindset. So, this structural enables each business to have undiluted focus in its segments whilst the Corporate Management Committee plays the role of resource allocation, mentorship, developing talent and also enabling it and providing resources for each business to actualize its potential. And of course, the Board of Directors provide the strategic supervision to the Company as a whole.
Every enterprise, no matter how large or complex it is, needs to continue to remain nimble and consumer centric for continued success. And therefore, in businesses that have grown large, we have set up empower teams and these are cross-functional teams around product market clusters, and they have end-to-end responsibility of delivering performance for that product market cluster, and they’re completely empowered and enabled by our governance strategy and the common resources that ITC as an institution provides.
R&D, as I said, is a very important vector to power our growth. ITC Life Sciences & Technology Center at Bangalore is actually been rated as the top innovator in private sector in India. It is in fact got the second highest number of patents after the number one government institution. And we have a team of highly engaged and qualified scientists, 350 of them. We have global partnerships and collaborations. And we have the requisite infrastructure in terms of labs, pilot plant, process development, technologies available for us to be able to further this area.
Now, the pandemic has taught us that speed is something that was unimagined in the past, the speed at which all of us, many companies, and I will give you an ITC example itself, the speed at which we’ve innovated and brought products to the market is unparallel, it is never happened before. So, the paradigm has changed. And we were able to participate in that and launch products very quickly into the market, because in the recent past, we have invested around a few platforms that we believe are important to build our brands and build our products over time. And these are based on analysis of emerging trends and these platforms enable agile and purposeful innovation, speed to market crashes. That’s why, for example, Savlon has so many things in its portfolio just in the pandemic year as an example, and my colleagues will talk more about it. But this is a very important investment and we will continue to do so. And I do believe that this is already yielding very good results, and I will allude to some examples as we go forward.
We’ve raised the bar on Sustainability 2.0. For example — and I’m just going to give you a couple of examples, because my colleague Nazeeb is going to have a more detailed presentations later. Although, we are water positive, we have raised the bar, given the societal challenges and we have said that by 2030, we will provide the society 5x of our net water consumption. We will — climate smart agriculture has been progressed so far in 2.5 lakh acres. We are committing to take it to 3 million acres by 2030. These are just some examples. Nazeeb will give you the complete picture on the targets and ambitions we have set and the broad areas of our interventions will be along the lines of building green infrastructure, decarbonization, nature-based solutions, secularity, adaptation and resilience, and creating inclusive value chains. Our value chain support 6 million lives. Aspiration is to take it to 10 million lives by 2030.
We want to be a dynamic future tech enterprise, as I said earlier. This means transformation across the entire value chain right from marketing, operations, e-commerce, employee experience, supply chain, and it’s also calls for transformation of the business model, and a very important enabler of that it’s about the skills, the culture and the way we work, all that will have to transform over a period of time. We recognize that. We have started the journey at a very accelerated pace. And there are areas of initiatives, which my colleague Sumant will cover later. I’ve just called a few of them like DigiNext and Young Digital Innovators Lab to provide the thought leadership and ideation for more and more interventions in future. We have 6th Sense, Customer Data Hub, Industry 4.0 Center of Excellence, the Digital & Analytic Center of Excellence, Connected Ecosystem, and we’re also starting our journey in D2C and platforms. So, this is an area which is receiving immense amount of attention, and it’s being looked at in an integrated fashion across the entire value chain, and we will see a lot of investments in this as we go forward. A lot has already been achieved, and my colleagues will give you examples as we go forward. Though there are some examples here, I’m not going to get into it, because it will be covered later.
I also spoke about cost management, and we are looking at cost management end-to-end. The entire value chain is being evaluated with rigor to take out cost from each element where we can take out cost by either removing it, reducing it or re-engineering it. And we have a comprehensive framework, which all our businesses utilize right from imports, how do we buy agri produce? We have algorithms like Astra that help us optimize buying. How do we deal with media mix efficiency? How do we deal with optimization of supply chain? How do we optimize our manufacturing? How do we baseline our overheads and start with zero budgeting? So, there is a comprehensive framework, which is used by across the Company and helps us drive down cost year-on-year.
Talent is the most important resource for any enterprise’s success, and we are proud of the talents that we have got. We got an extremely aligned, engaged and committed talent, which comes in from the best institutes in the country. Just to call out a few data points, in our surveys, 96% of employees say they clearly see a linkage between what they’re doing and ITC’s goals; 95% of employees feel proud to be part of ITC. We crowdsource ideas, create forums for employee ideation, and we have got now 2,100 plus ideas, very interesting ideas, for either process improvement or new business opportunities. Our leadership attrition is just 1%. 75% of our leaders are from within, that’s a testimony to the robustness of our talent development processes. And of course, we want the best person for each assignment, each leadership position, so where required, we also hire the best-in-class talent from industry, and that’s how 25% of people in the leadership team are actually from outside the industry.
We have a high performance culture. It starts with building contemporary capabilities. These days, for example, there is a lot of focus on digital. There is proneurial culture that we have created in the organization with the challenger mindset, with the mindset of creating newer business opportunities, and this culture is also created by the opportunities that our talent gets in building businesses from scratch. Compensation is benchmark to industry. It is directly linked both short and long term with business deliverables. And in our case, of course, the variable component of the compensation is it would be higher than what is normally seen in the industry.
Let me now from here move on to the business segments. There are some segments, which I said, which will be covered a little later, so I will give you an overview. And some segments, we will not be able to do today, but hopefully, we’ll have another occasion to talk about.
What is interesting is that India’s pattern of tobacco consumption is unique. Globally, cigarettes is the dominant form. In India, it comes in many formats, like bidis, like chewing tobacco, zarda and so on and so forth. At an aggregate level, if you look at the per capita tobacco consumption, we have 60% of the world leverage. But when you look at it for cigarettes, it’s only 11%. So, India accounts for less than 2% of the global consumption of cigarettes while we have 18% of the population, that is because we have the lowest per capita consumption in the world. And this — and that is why the cigarettes, which are — which form — actually form a very small component of the total basket of the tobacco consumption. It is just 8%. 92% is in other forms or in the form of illicit cigarettes. And this 8% contributes to a four-fifth of the revenues from the tobacco sector. This indicates the fact that this is a — this is disproportionately or it experiences, what we call, discriminatory taxation. And in comparison to the world, the tax on a per capita GDP on purchasing price parity actually is very high in India as compared to even the developing economies. And that is what is leading to a very large illicit trade revenue loss to the exchequer, an adverse impact on the farmers. What we do required is an equitable pragmatic, a reasonable taxation policy that does not create more unintended consequences like illicit going up or shifts to other forms.
Now, this data is just to illustrate the impact that taxation has on the performance of the revenue collections. Now, in a period where taxation went up by at a CAGR of 15.7%, the collections, the revenue actually went up by 4.7% only. In a period when there was stability, which is the right box, revenues actually went up by 10%. And this is simply because in periods of reasonable — in periods of stability, the legal industry is able to clawback from illicit, because as people progress, as people get economically empowered, and we find that people go back to buying trusted brands, so there is a clawback and there is also some interplay within other segments. And given that cigarettes is only 8%, the rest is 92%, a small fraction of interplay itself can bring in — provide some headroom for growth in this sector. That’s why this — that’s what explains this kind of behavior in the industry.
We are — as I said earlier, we are the market leader. We have great brands. We have world-class products, processes, state-of-the-art technology. We have unmatched distribution capability, best-in-class profitability and returns globally, despite the adverse regulatory environment. Given this context, what are the imperatives for this business? Now, as I said, that cigarettes is only 8% of the basket of tobacco consumption. Therefore, the first task for us is to maximize the potential of the cigarette industry within the tobacco basket. A small shift itself is a significant percentage for this industry. And we need to counter illicit. We need to reinforce our market standing, our market leadership. These are the objectives.
And how do we do it? There are broadly four pillars of our strategy. My colleague Sandeep is going to exemplify it in more detail. But broadly, it’s about starts with our portfolio, starts with our powerful trust marks, which have been built painstakingly for decades with unmatched quality, unmatched products. And the endeavor is to offer — actually not offer, to create offers, and I’m emphasizing “s” for every viable segment. It’s like creating — looking at the market as an aggregation of niches. So, for every viable segment, we must have offers. And we must have offers that are distinctive, that have distinctive features that create a reason, create a point of difference for a consumer to stay with that rather than to opt for something like an illicit or some other category. That’s why we continuously invest to build our portfolio and to premiumize our portfolio, take our premium portfolio far and wide into the country. And to enable that, we need a powerful innovation engine. We need the innovation engine that can do things at scale, that can do things at speed. And our deep category insights across seed to smoke value chain helped us create many distinctive vectors of differentiation. We have got proprietary models, proprietary tools across the seed to smoke value chain.
The third lever is to be able to capture value across the entire seed to smoke value chain. Given our expertise in the entire value chain, the investments we have made to build distinctive capabilities, for example, we had just amongst the very few or probably the two in the world that can make our own filters and capsule end to end, helping us to save a lot of cost. So, these distinctive capabilities help us make in India, maximize value capture in house, and of course, we continue to contemporize this knowledge, contemporize this value chain with the latest digital technologies. And the fourth piece is about our ability to execute, to be able to make products of unmatched quality given the process technology, the process expertise we have and state-of-the-art technologies and the capacity to execute in a differentiated fashion at the last mile. So, these other pieces that we relentlessly pursue to achieve the three objectives that I spoke about, and Sandeep is going to expand on this when he comes in a little later.
Let me move — Sandeep is going to expand on this when he comes in a later.
Let me move on to FMCG Others, which is our newest business, and this business has got four segments, Branded Packaged Foods being the largest and we’ve got Personal Care Products, Education & Stationery, Matches and Agarbatti. Over the years, we have built 25 mother brands. We are probably the largest incubator of world-class Indian brands. They encompass a consumer spend as of last year of INR22,000 crores. Estimates are that we have created these brands very efficiently at 1.7 times the top-line as against if we had gone the inorganic route, it would have costed us 4 to 5 times the top-line. So the growth has been fairly efficient and we are already the second-largest player in the FMCG segments from a size perspective. And our aspiration, when we went in also, was to create an FMCG business at scale because we wanted to create a economic engine at scale to create a value which can materially impact ITC and its stakeholders.
A quick look at the trends that guide all our thought and actions in this business. There is very clearly a move towards trusted brands, move from unbranded to branded. Health, wellness, hygiene, it certainly heightened post the pandemic, but yet, there is a need for indulgence, there is a need for home conveniences, there is a need for on-the-go solutions. Natural organic is getting more and more popular, and there is greater interest after the pandemic. Digital is a powerful trend. And given these start-ups and the unicorns that are coming in, the route to markets are transforming or I would say even getting disrupted. So these are some of the key trends that guide our strategies.
Now there are a number of strategic pillars we have, but what I’m going to focus on is the trust on ITC NEXT. And let me also say at this point that ITC NEXT is about building on the success of what we have achieved so far. Bringing in newer vectors, identifying newer vectors of growth, dealing with certain challenges that we may have faced in the past whether they’re internal or external, and this is the philosophy of ITC NEXT across all our businesses.
So with respect to FMCG, there are seven areas that I would like to call out. One is that it’s about revitalizing the portfolio and managing it actively. Second is, we are recognizing inorganic where bulk of what we have done is being built organically. So we now want to bring in inorganic as a significant vector of growth given that we understand this space with our experience in this over two decades, we understand this space well. Exports is being accelerated. I think the PLI is going to give further impetus, and my colleague Hemant will speak about it.
We are actively exploring opportunities in the proximal markets. Our R&D platforms have enhanced our speed to market. Given the disruptions and transformations in the distribution channels, we are also developing our own new routes to market, while we continue to collaborate and we will continue to collaborate and work with the entire ecosystem and our partners. And simultaneously, we are strengthening reach. The ICMLs provide structural advantages, so interventions are being made to fortify that. And digital, I have been saying many times during this presentation, is a very important megatrend. And therefore, in this business also it receives a lot of investments.
Let me first start with the portfolio. Sorry, I’m going to go back because I think I — okay. So there are three pieces to our portfolio strategy. One is to fortify the core, which are our large brands like Aashirvaad, Sunfeast, Bingo, Classmates, YiPPee, Savlon, Mangaldeep. And fortify, scale them up and use these mega brands to straddle value-added adjacencies. A good example is Aashirvaad. Besides being in value-added atta, like Multigrain, Select and then Sugar Control Release and Gluten Free, it is also about an organic range not only in atta, but also pulses. It has got Vermicelli, it’s also into salt and spices. So the strong Aashirvaad trademark is being created as a strong center of plate brand that will straddle many spaces in the Staple segment. We also have ready-to-eat solutions under Aashirvaad.
Another good example is Savlon, which was originally essentially a soap and a hand wash brand. Today it straddles many more value-added segments. Of course, some of them were unique to the pandemic, but there are others that provide — there are pieces that provide continued opportunity.
The third piece is creating the new vectors of the growth, investing in categories of the future. An examples of these are ITC Master Chefs, Nimyle, B Natural. And there are certain categories which we are incubating, which we are validating the right to win, which we are perfecting the model and when we are ready, we will progressively scale up. As a strategy, we are going to scale up only a certain number of categories at any point of time even if we are ready.
We will calibrate the scale up because each category that we scale up requires enormous attention from the enterprise. And the categories we have chosen are categories where there is huge headroom to grow. In many of them, there is a huge unbranded segments. And with people’s preferences towards trusted brands, we believe that the movement to branded is going to accelerate over time, particularly as the economy progresses. So in fact, our estimate is that we have amongst the highest addressable space in the FMCG landscape because we straddle many segments that have got huge headroom to grow on account of penetration and on account of the capita incomes, and this is a chart that illustrates this for some of our categories.
I also spoke about active portfolio management. We acquired Savlon, Nimyle, Sunrise because they were aligned to our strategic priorities in the FMCG space and things that were not working or we took a view with unlikely to meet our aspirations like John Players. We have divested Wills, we have completely shrunk. And Superia also we have largely shrunk. So we are actively churning our portfolio while things are not working out as we planned or they are not in alignment with our strategic priorities.
And our portfolio addresses all the important consumer need spaces. In hygiene we have Savlon and Nimyle, which is a natural floor cleaner. There is a array of good-for-you and free-from-you products. Some very interesting ones are the B Natural, Nutrilite range of beverages or the Sunfeast range of beverages. These have got some proprietary wellness ingredients, and the Sunfeast is a high protein shake. Similarly, we have a range of offers to deal with the consumer needs of convenience and go, to deal with the consumer needs of indulgence. We have offers in Fragrances. We have a very interesting innovation — interactive innovation, which is an adjacent space that Classmates has moved into. And we are building brands with a purpose. Brands must serve a societal purpose. That’s the principle and that’s how brands are being built. All of this is going to be spoken with some examples later. So I’m just glossing over it a little fast.
Digital in consumer engagement is receiving tremendous interest — tremendous investments, and we continue to amplify our reach. In the last few years, total reach has gone up by 1.2 times, direct covered by 1.4 times, market coverage by 4.5 times and stockist by 6 times. We are continuing to build in our strong partnerships in the core channels. This is the heart of distribution today, the convenience and the grocery channels. We are also making deep investments in channels of the future, be it e-commerce, be it modern trade. And we have had significant success and significant progress in these channels.
We are also building newer routes to market, some strategic partnerships. For example, just to call out, one is for example, what we have got with Amway to sell a range of health beverages. We’ve also established a climate control supply chain to deal with Master Chefs. And given our inherent strengths in food, even the agri business, we are also building our food services channel. This is another channel that we have opened up in the recent past.
The ICMLs provide us immense opportunity for creating structural advantage. Besides helping us to make our premium products with unmatched quality and also helping us to keep all our IP in-house, they provide structural advantages by delayering the nodes of the supply chain; integrated warehousing. They are located proximal to consumption markets, lower distance to market. We are able to ship directly to customers. We are able to integrate buying, where possible, even create integrated local agri value chain. And bringing the best practices for smart manufacturing so we optimize manufacturing totally within our ICMLs. So these are creating structural advantages because we are building this with all these objectives in mind and therefore structurally they are designed to give this benefit.
Over the last 10 years, our FMCG businesses have multiplied by 4 times. We are the second largest player in India today amongst the listed players. If I look at a shorter duration from ’17 to ’21, the business has scaled up from little over up — from 10,500 to close to 15,000. And in the same period of time, our margins have expanded by 640 basis points. This year, we have been able to sustain our margins. And you’re all aware that this year all the players in the industry are faced with a very high degree of inflation, unprecedented. So this is a challenge we have to contend with, and we are dealing with this through internal measures of efficiencies and calibrated price increase.
So far, we’ve been able to sustain our margins, though ideally, our aspiration was to continue this trajectory that you’ve seen in the past. But in such extreme events and exceptional situations of massive inflation, this does receive a little — this does gets challenging, and it’s not only with us, it’s an entire industry phenomena. So that is a challenge this year. But we are fairly confident that going forward this trajectory will be sustained and we are going to continue to improve our margins and progressively take them to best-in-class for the categories that we are there really. And we also expect to continue to post growth in the top quartile with margin expansion that will of course see our EBITDA and ROC move at a faster trajectory over time.
Let me now move on to the next business, which is the agri business. It’s a business where we are a market leader. We are very clearly a market leader. We are a very large player dealing with 3 million tons of commodities every year. The scale gives us efficiencies in operations. We deal with 20 crop value chains and in 22 states. And we are a pioneer of rural transformation through the ITC’s e-Choupal, which empowers 4 million farmers. It’s the world’s largest rural digital infrastructure.
We’re also a big player in the leaf tobacco exports, largest buyer and processor of leaf tobacco. We are the fifth largest in the world. And we are about 40% share of the Indian exports. And we have leadership here because one, we have deep expertise; two, we have a network for sustainable sourcing; three, we have excellent relationships with the farmers so we can actually work with them to produce what the consumer needs, produce the buy so to say.
Of course, this tobacco segment has been under pressure from an exports perspective on account of the trends globally. So we’ve got to address the growth and profitability vectors of the agri business, which have because of this development of leaf tobacco been under — have not been buoyant in the past. We have got three transformation pillars here. Of course, this business will continue to bring in efficiencies and provide competitive advantage to ITC’s businesses by providing high quality, cost competitive, safe agri produce because we do extensive amount of crop surveys before we buy to ensure product safety. So this advantage will continue and we will build on it.
Besides that, the three transformation pillars are really to press the accelerator on value addition. Create a future-ready portfolio of value-added products, both from the type of agri value chain we deal with as also the value addition to the produce which is really the processing. And again, the principal is produce the buy. So it is attribute-specific and completely aligned with the customers’ need.
The second pillar is ITC MAARS. It’s a transformative business model, the very creative monetization model which will be built on the strength of e-Choupal 4.0 I will give you some highlights of this model, but we will look for another occasion, maybe a little later once we have launched it in the next few months to give you some more details about it.
And the third piece to bring in efficiencies at the back end is what we call next generation agriculture, backed by FPOs, digitally enabled by ITC MAARS with embedded sustainable practices. That’s again also going to give us a competitive edge. You are aware that more than country — more than 100 countries this time in COP26 have signed the declaration on reducing emissions in the agriculture sector. Our sourcing for our own businesses straddles many value chains aligned to the value chains that foods operates in. And in each value chain, our agri business division brings in a source of competitive advantage and helps the business scale up.
As I said, we are pressing the accelerator on value added. So this green square at the top right hand corner really explains you the areas that we are focusing on; processing and value-added products. For example, food safe spices; for example, medicinal and aromatic plants, fruits and vegetables, organic puree amongst others. And these are two investments — these are examples of two investments that we are making to dial-up value addition. There is a spices facility coming up in Guntur. And there is a nicotine and related products plant that is coming up in Mysore. This is going to make nicotine with 99.5% purity. It’s a complete line that is designed in India between our engineers and our partners. And it will meet the U..S and EU Pharmacopoeia standards with sustainable waste disposal. And this is an area we believe has good potential given the global demand for such products.
The ITC MAARS builds on the ITC e-Choupal. It’s a physical model. The physical aspects, whether it’s the demonstration farms, the lead farmers and the information highway of connecting all the players comes from the e-Choupal. What we are building on top of that is the ITC MAARS, which is better markets for advance agriculture and rural services. There are really three pieces to this network which I think are better explained in this slide.
First and foremost is the piece on crop advisory. As we know, there are about 1,000 or maybe more agri-tech starts up in India. But for the farmer to be able to benefit from their technologies, disruptive technologies that have been discovered, the right ones have to be big in his context, in his weather situation, in his crop and in his geography and integrated to give him a solution. So what our platform is going to do with the technology layer that we are bringing in which will be plug and play with agri-tech start-ups, but will create a hyper local personalized solution yet scalable solution at the farmer level. And then all this makes sense if he has the access to the right inputs. So there will be an input marketplace. And then there has to be somebody to buy the produce. So this will also provide the output linkage. Of course, we ourselves are the large output player. We are already committed to it. And hopefully, over time, we will get many more there.
And then beyond that, beyond the pure agri space, there are other areas that we will progressively examine. Things like insurance and banking loans are things that will come in quite fast. The others will over time we will evolve it. And we believe we have a right to win here for three fundamental reasons; low customer acquisition costs, fastest scale because we are a scale player in this business, we have deep relationships and credibility in the industry and we have a creative monetization model.
I will now move on to our Paperboard, Paper and Packaging businesses. We are again here a market leader not merely in terms of size, profitability, but also in terms of sustainability. We have best-in-class operating metrics, just like we do in agri. And we have strong sources of competitive advantage. And [Indecipherable] there are newer vectors of growth that have — we have articulated under ITC NEXT. Fundamentally, we have deep expertise in paperboard and packaging. And the fact that we are leaders in the value-added segment is a testament to this capability and this is backed up by state of the art technology.
Our competitive advantage also stems from our renewable and competitive fiber value chain that is located proximal two our manufacturing center. We are a one-stop packaging solution provider, again, because we straddle multiple elements of the value chain. We can bring in unique sources of competitor advantage and unique and innovative solutions. So we are going to continue scaling up value-added products portfolio as we have done in the past. And as part of ITC NEXT, I think we are — there are two very strong areas of focus. One is on Industry 4.0 and digital. The second is on sustainable paperboard and packaging solutions. And of course, also aligning with our Sustainability 2.0 agenda.
Just to give you some examples of what we have been doing. These pictures show what we have been — some of the machinery that has been put in place for making value-added paperboard. And Decor, another segment where India is — there is lot of demand in the country. The box at the right is a very interesting one. It’s India’s first BCTMP mill. This makes pulp typically out of softwood. We have made this pulp out of hardwood. That’s where the innovation has come in. And just this investment itself brings up hundreds of crores savings on an annualized basis. And the fact that we have a renewable and competitive fiber value chain helps us really get value out of this investments that we made.
The other piece we have dialed up significantly Industry 4.0 technologies. This is the first site, the ITC Bhadrachalam paper mill was the first site we choose for a deep dive into Industry 4.0. And that was chosen because this is the most complex and largest manufacturing system in the ITC landscape and it has a wide array of initiatives over 50 use cases developed, state of the art digital technologies used and this itself in itself has helped us expand margins by 230 basis points. And it is the learning from here that we are taking across all our businesses and that’s how all our businesses are actually making today appreciable progress on Industry 4.0. We have a center of excellence housed in this business that services all our divisions.
These are some examples of sustainable packaging solutions. These are all developed in-house, but we also have some global collaborations we are working with, and we hope to bring out more such products in future. We have for example the biodegradable barrier boards which is used for a range of applications, particularly, in the QSR, which is a growing area. And we have recyclable boards which are used in packaging of consumer goods. And we have the Bioseal technology and the Oxyblock technology and the anti-icrobial coating. All of this, were earlier using some form of poly to be able to complete it. These are all being substituted. We are finding interesting uptake not only in India, but overseas. And over time, we believe this will become a bigger and bigger component of our portfolio.
Moving on to the Hotels business. We have 110 properties. We’re the second largest chains amongst the younger chains in the country, 75 locations. We have best-in-class profitability metrics, but there is a challenge on capital productivity. And this Strategy Refresh seeks to deal with it. The first pillar of the strategy is our asset-right strategy, which was articulated way back in 2017. And we’ve been working on it and now we are finding that it’s gathering pace. We refreshed and renovated Welcomhotel’s brand to position it for the asset-right strategy. More recently, we have added two brands; Mementos by ITC and Storii to further our journey in the asset-right strategy, and there is immense promise that we see in this space.
The second was about augmenting revenues and sweating our existing assets. I think the pandemic has taught us, brought us a new revenue line. This is the take away cuisines. And given our strength in cuisine, I think this is an opportunity that we are pursuing with a lot of rigor. And then there are other pieces that are also being pursued. There is the ITC Club Prive. And then there is the Sleeep Boutique, the first of which is opened at ITC Maurya recently. We — selling Sleep is an important facet of any hotel. We have a Sleep Lab at the ITC Life Sciences and Technology Center. So when you go to our hotels in the room service menu, you will also find a sleep menu. So based on our research, we have developed solutions for to bed and for the ambiance and for the fragrances that help you get a good night sleep. So that’s what this boutique offers to consumers. There is interesting uptake in the initial days. And we are hoping to be able to scale it up and also make it available digitally. So that will be another revenue stream for the hotels business.
Digital is an area of investment from the purpose of revenue management, guest experience, guest servicing and loyalty. And there is tremendous focus on cost, structural interventions have been made and these will provide sustained benefits over time and will be visible as the industry recovers.
These are some of the new properties. Welcomhotel properties that have come up. Today in terms of the 5 Star room inventory, they are just about 25% are from management contracts. In the next few years, this will become 43% because of the focus we have on this segment and the interest and the pipeline that we have got that gives us the confidence that this transition will certainly happen. In fact, we hope to be able to exceed it over time. Here are the two new brands we have launched in the recent past. Under Mementos, we already have three properties onboarded. Under Storii, we have four MOUs signed already. So very, very encouraging progress, though early days.
I will now move on to ITC Infotech, which is a business that we have been giving additional focus and thrust in the recent past with the new leadership team. This business has made immense progress in a short period of time. Margins have moved up, EBITDA margins from 8% to about 25% in a short period of time, and we continue to progress this year as well. Revenues are up 24% and EBITDA is up 63% in the first half of this year. And we believe it’s an interesting time for this business because there is disruption in the technologies. And given the technologies, the digital — the power of digital technologies to deliver business results, I think domain understanding was never as important as it is today. So the interplay of domain and technology can actually create a competitive advantage. And given that some of the verticals that ITC Infotech is into are aligned with the domains of ITC, given that, some of the verticals that ITC Infotech is into are aligned with the domains of ITC. I think there is synergy on domain expertise and that positions ITC Infotech well. There is focus on strategic accounts, large deals and the interplay of domain and technologies. And this I think offers an exciting opportunity for growth. Given the talent, given the talent shortage in this industry and that is the critical lever of success, ITC Infotech has worked with a professor at Howard to create a unique model from work from anywhere, which has been launched and that will hopefully help us strengthen our talent acquisition efforts.
Okay. I will now move on to our financials. These are really more long range financials. Over the last 10 years, our topline has multiplied 2.2 times, bottom line by 2.4 times, and by PAT by 2.6 times. But I would like to also draw your attention to 10 years prior to up to FY20 because some of our businesses as you know were impacted last year in the pandemic. So if you look at the picture from FY10 to FY20, there is 2.6 times and our GSV is now INR76,000 crores, PBT 3.2 times at over INR19,000 crores and PAT at INR15,000 crores, which is 3.7 times. PAT growth CAGR is 14%. ROCE has moved up, ROCE has moved up from 48 to 72. Growth has been funded largely through — it’s been organic route and funded through retained earnings.
A brief look at the shorter window of this year. Last year was impacted by the lockdown and the pandemic and our businesses, largest business like cigarettes were impacted in the earlier parts of the — seriously impacted in the earlier part of the year. So sales is up 22% in the first half. PBT is up 20% and PAT is also up 20%, so smart recovery. Over the last years from 2012 to 2021 or the last decade rather, our cumulative free cash flows have been INR73,000 crores and you would see over-time, the pace of generating cash is actually increasing and accordingly after assessing our requirements for capital, we have been upping our payout ratios, which is a dividend payout ratio and we have a very clear policy on it. Last year, of course, because it was an exceptional year, we paid hundred 102% and in recent years, which is the period from FY17 and then stopping at FY20, because again 2021 as I said, had some impact, EPS is up by 47%, free cash flow generation is INR31,000 crores, FMCG businesses have scaled up from INR10,500 crores to INR15,000 crores. EBITDA margins have expanded by 640 basis points and very clearly we have a sharper capital allocation policy. Actually we announced in 2017, the asset-light strategy and which is making progress and dividend payout ratio has been stepped up to 80% to 85%. Just to quickly summarize. We believe the strategies that we have now articulated as part of ITC next build upon the success we have achieved in the past, addressed some of the challenges and headwinds faced by some sectors. For example, the agri business, for example the hotels business, the cigarettes business and also identify newer vectors of growth in each one of our businesses. Whether it’s paperboard to sustainable packaging, agri business through March or value addition, hotels through asset right, FMCG through a much stronger portfolio play and leveraging scale of our mega brands. So we have defined — we have very clearly defined the additional vectors that need to come in to drive growth and to drive profitability. Investments in digital are going to help us be competitive, are going to help us drive both revenue and profitability.
We are raising the bar, an ambition on sustainability captured in sustainability 2.0, we have recognized M&A as a important vector of growth, we have recognized exports and proxable market as another important opportunity, which we are accelerating. We have redefined this strategy of organization where needed to keep it consumer-centric nimble and focused and more importantly of course, I would say, in fact, most importantly, we have a talented team, a highly engaged team, a very committed team with the spirit of being or primorial to propel the organization forward and we believe that given all these interventions that we have taken, we should see double-digit growth or really I would put it this way that this makes us feel optimistic and committed to a double-digit top and bottom line growth going in the years in the years ahead. And in summary, we have a passion for profitable growth in a way that is sustainable and inclusive.
And with this, it’s over to you, Karthik. Thank you, ladies and gentlemen for your patient listening.
Karthik B — Head of Corporate Planning
Thank you very much sir. It was a very comprehensive presentation on strategy. We now have Mr. Sandeep Kaul, Divisional Chief Executive of the Cigarettes Business who will give us his presentation on the Cigarettes Business. Over to you Mr. Kaul.
Sandeep Kaul — Divisional Chief Executive of Cigarettes Business
Thank you. Good afternoon, ladies and gentlemen, thank you for joining us this afternoon. I have the privilege to present to you a few highlights of the cigarette business. Tobacco industry in India is a very interesting market and very different from most other countries in the world. It happens to be a large grower of tobacco, in fact, the third largest grower of tobacco in the world. But very different from some of the countries in the west, cigarettes are not the predominant form of tobacco consumption in India. In fact they only account for 8% of the total tobacco consumption and other forms of tobacco consumption exist in form of bidis in the smoking area, khaini, zarda, gutka in the chewing area. And interestingly of course while the consumption of cigarettes is also happens to be one of the lowest in the world and that’s one of the reasons that the share of cigarettes in total tobacco consumption is only 8%, but despite being only 8% of total consumption, cigarettes account for 80% government tax revenue. The consequence of this cigarette-centric tax and the sharp increase in tax incidence over the years there have been some unintended fall-outs and one of them being of sub-optimal tax collections, when at the time of heavy rates of increase in taxes and we’ll come to it shortly, I will show you some examples of that. And it is also led to proliferation of an illicit and contraband cigarette market in the country. India now is considered the fourth largest in illicit cigarette market in the world. We’ve already seen that only account for 8% of the total tobacco consumption and balance 92% are the other forms of tobacco. So other forms of tobacco and illicit cigarettes actually is almost 10 times that of the legitimate cigarette industry in the country.
If you look at the whole taxation policy and the cigarette-centric taxation, as we hope for a more moderate and equitable tax policy and the benefits of that are visible in this small chart. If we compare two time periods, one a period between 2012-13 and 2016-2017 when the tax rates moved up by almost 16% a year, the revenue — the tax revenue only grew by 5% while in the short period of tax stability that we enjoyed from say April 2018 to Jan 2020 when there was no tax increase, the revenue growth actually was as much as 10%. So this actually demonstrates that when there are periods of stability, there is potential for higher contribution to the exchequer by the legal cigarette industry and the legal cigarette industry is able to claw-back some volumes from the illicit trade. The menace of the contraband and the illegal cigarettes in the market has — there is a higher degree of awareness of that and there has been a higher degree of enforcement and there have been media articles on regular seizures that have been done by the Enforcement Act authorities and that’s a very good positive development and we hope that this development continues because this is a real big menace, not only for the industry, but for the economy as a whole.
Given the challenges that the cigarette industry faces, there are business imperatives and first amongst that is to maximize the potential of the cigarette category within the overall tobacco basket. Secondly, it’s about countering the illicit trade. And third, we would like to continue reinforcing our market standing as the leading cigarette company in India.
We briefly mentioned this earlier the four key strategy levers that we deploy to achieve these objectives; the first being, of course, our future ready portfolio. Now this is comprised of some very powerful trust marks that have been created and nurtured over many years and constantly improved upon a laddered portfolio and our ability to provide variety and premium offers and distinctive offers to every possible market segment in the country. This is enabled by an agile innovation system based on category insights, creation of vectors of differentiation and a strong degree of intellectual property and proprietorial knowledge that comes out of us being present across all nodes of the seed to smoke value chain and this allows us in addition to being able to give new products and new differentiated offers, also allows us to cut the lead time, be quick to the market, be more efficient, allow us to capture more value within the chain because we exist from end to end. Our whole value chain, which is present in India is maximized to allow us to capture value and bring in cost efficiencies and the whole thing has been buttressed by the industry 4.0 effort to contemporize modernize and bring in modern digital solutions to the market.
In substance, in summary, we have leading brands in every market segment that is strong, category insight generation engine that strengthens the portfolio continuously. In fact 11% of our volumes come from new launches. We have reached to 1.4 lakh markets, best-in-class retail service, we are available in 7 million category outlets, almost twice that much of our nearest competitor in the area of sustainability. 55% of our energy comes from renewable sources. 99.9% of solid waste is recycled and we continue to be leaders in sustainability and justified by the awards that have been given to us by various bodies, six awards in the last year alone. This whole thing is supported by a very capable and advanced technology spine, a backbone that is continuously modernize with industry 4.0, proprietary models and integrated in-house capability for leaf development, capsules, specialty filter and supported by JVs business where e have a 50-50 JV to create competitive advantage and differentiated filters, for example.
Some of these areas of strength and vitality really came to the fore, as we dealt with the unfortunate pandemic with which we have been effected for the last 18-20 months. Very happy to say that after the gradual opening up of COVID 1, post COVID 1, we could restore the total chain pipeline as the markets opened up within a very, very short period of 60 days. We reconfigured the supply chain to adapt to the new normal very quickly. To make sure that there was continuous accessibility of products, we increased the frequency of service where necessary to the retailers, the stockist network was expanded, the sales infrastructure was enhanced appropriately. The insight to execution engine delivered appropriate unit pack formats wherever necessary, new safety solutions were deployed at the top retailers so that people could shop in safer hygienic circumstances and our agile distribution coped up with the change in dynamics of the demand as the mobility patterns changed.
In addition to that, we also continue to bring in new introductions, new variants, new formats to the market and continued our journey. As we come out of the second wave of the pandemic, the trajectory definitely points to the fact that the second wave the recovery has been faster than the first wave. We have led the industry in the recovery and we have increased our market standing over this period by almost 100 basis points, in line with our overall long-term trends.
I’ll delve a little bit of on each of the four strategy pillars that we spoke about. The first being, of course, our future-ready portfolio. It’s a portfolio that straddles all price points, multiple segments, multiple regions, multiple geographies and is based on a very simple model, very simple model that we would like to continuously create value and this is done through our processes of market insights and innovation and then able to convey that value through our product and packaging features and then in turn our laddered portfolio, our portfolio architecture and the quality of our products, the product excellence and the last mile excellence allow us to capture that value and the cycle goes on. So create value, convey value and capture value. And great example of that is some of, I’ll speak about some of our leading trademarks. Classic has been in the market for about 40 years, yet is vibrant and contemporary and leads our king-size trademark portfolio and competes with the best in the world. The four new variants launched over the last five years alone contributes to 25% of the portfolio and that is testimony to the vibrancy and the freshness of the brand portfolio that is run in classic. It’s known to be an innovation leader and has always been the first to market in bringing capsules, filter technology, low circumference products, fresh sealed packaging in new pack styles.
We have a brand of Gold Flake, symbol of 100 years of legacy and trust, possibly the most valuable and largest FMCG brand in the country, operates across multiple geographies, multiple price points with multiple variants. Despite 100 years of leadership, new launches have contributed 10% to the portfolio and this brand too over the last 18, 20 months has rapidly moved into new segments of filters, pack styles, low circumference capsules. But our portfolio is not just about Classic and Gold Flake, which are our national brands, so as to speak but a very, very close look at the market we all know, India is not one market, it comprises of many, many sub-markets, micro markets and we have been able to create using a micro-market strategy approach looking at price laddering, looking at regional customization, been enable to create a leading local brand in every geography and we have Navy Cut which has presence in Kerala, Northeast, Bristol in the West, Capstan in the North, Flake in the East, American Club around Telangana and Andhra, Silk Cut in Bengal, Scissors is Tamil Nadu and Kerala, Player’s in Karnataka. So these are all leading brands in their own markets crafted on the basis of very local insights and local opportunities and these complement our efforts with the national brands.
And how does the model work towards achieving these three objectives of maximizing potential within the tobacco industry combating illegal and illicit trade and enhancing standard amongst the legal players. The core of it is our internal seed to smoke capabilities. The context is provided by our programs in category insights, trade insights, innovation. And the windows to the market provided by market opportunities, innovation-based distinctive products wherever we can provide a clear distinctive product, a differentiated product. It’s also about reinforcing the core of our portfolio and premiumizing wherever the opportunity exists. So this is the process that we continue to deploy and the portfolio continues to evolve. As I mentioned earlier, 11% of our volume comes from new products.
Based on market opportunity base, first to market product, assortment has more than doubled in the last eight years, so that we are able to provide an offer in every viable segment. This is enabled by an agile innovation engine, looking at multiple vectors of differentiation and for example, it is their filters, where we use specialized filters, in-house efficiency in various ways of technology of filters, formats, fives pack, fresh sealed pack, new variants addressing new market segments, all backed by internal capacity of an end-to-end integrated value chain, which gives us great speed-to-market basis the superior talent that we have and the indigenous machinery development platforms that we have created and cutting-edge R&D system based on 80 scientists state-of-the-art labs, 20 patents, 60 more in progress and the whole seed to smoke value chain expertise. Nurtured carefully over the years with the capacity to innovate and the talent to innovate, some of these competencies and are a matter of domain expertise and we have internal domain experts in the area. Some of the skills are not easily available in the market and we have an internal technical university to drive industry-specific skill enhancement and we have innovation design teams. For example, the innovation design teams have delivered as quick changeover kits provided a frugal automation solutions provision analytics for online product monitoring system and unique pack styles. So this is something that is only within our system.
A good proof of concept of this was the whole evolution of the in-house capsule capability over the last four or five years from inside to product development to the in-house manufacturing capability and finally, through — the manufacturing capability of course give us many advantages; one is of course significant cost saving, the second is compared to anybody else we can get much quicker to the market when we see an opportunity and this is reflected in a diverse range catering to various market segments. So this is a story, which encapsulates capitalizes how we make our seed to smoke system works internal capacity to innovate and our proprietorial engines bring to bear on market problems. Our integrated seed to smoke value chain is unparalleled and I have a short video to take you through some facets of the same.
[Video Presentation]
Picking up the thread from the video, this small chart demonstrates what we mean by the seed to smoke value chain. From our leaf tobacco growing division, which works very closely with the farmers in the field, the product development team, the extended version of which includes some joint ventures in the area of filter development, the packaging and printing business that allows us to use newer forms of packaging and board and create innovation in the area of packaging and of course the manufacturing, the indigenous capability in manufacturing and the last mile execution in trade marketing and distribution, and this is the model that has helped us sustain our leadership and grow our business continuously. The new product capability and skill enhancement models work on speedy product development and prototyping with capacity, in-house capability for emerging products, skill enhancement through digital technologies as we saw and the in-house technical university with a library of immersive technologies in the area of augmented reality, virtual reality and so on and this allows us to create the capacity to create and renovate.
Our manufacturing network is spread across the country. It has integrated capability to manufacture all variants, capsule, capsule filters, so that we can be faster to the market at competitive costs. Our distribution facilities are distributed across the country for optimal logistics and we have contingency capacity that our manufacturing locations to derisk against localized discontinuity. The manufacturing infrastructure, so we have in the area cigarette and tobacco processing, the cigarette packaging, capsules and capsulators, dryers makers all state of the art.
This is supplemented by a very unique made in India Make in India effort, supported by an in-house machine development and machine design team, which allows us to develop all those indigenous platforms with which we are able to save cost, bring about differentiation and get to market quicker. And we have in the past, develop sub-assemblies for double capsule filter manufacturing, develop wrapping in end of line equipment across the lines are all indigenous development.
Industry 4.0 has been continuously leveraged to keep our systems, processes capabilities up-to-date, modernize digitally right up there. Shop floor digitization through machine level data integration has allowed us to improve our operational excellence. We have enhanced our product consistency through application of AI and data science models to control the processing parameters. We have looked at IoT and machine learning to bring about online waste reduction machines, deployed image and analytics based systems for 100% online quality assurance and this is when the speed at which our lines work is phenomenon, developed predictive analytics for optimization of equipment and utility performance.
In the area of material movement, we have used autonomous guided vehicles, deployed robots cohorts in the area of material feeding, enhanced quality through mass flow conveyors and, of course, deployed processes like RPA for repetitive manual annual administrative assemblies. Immersive technologies are continuously used for the benefit of productivity enhancement and we’re really well deployed during the period of the pandemic also because we could continue to maintain our machines and do their improvements, sitting from remote locations and the technical universities and other places. So we can use mixed reality for online maintenance and virtual reality for assembling. All our initiatives have been very widely recognized and we continue to be proud of the fact that each of our factories have been recognized by the industry for the work we have done in sustainability.
And all this is backed by excellence in execution. Our product quality is right up there, well ahead of our nearest competitor. PQRS is one of a proprietarial models that we used to measure our quality versus that of competition. The gap only keeps increasing and delivers that excellence in product with which we win in the market. And all this is supported by our excellence in the last mile. As industry leaders, our product is available in all the category outlets. There is about 7 million of them across the country. We just service to 10,000 plus redistribution channel partners. We have 7,000 mobile units servicing the interiors of Bharat. We have best-in-class daily servicing and this is very interesting because many of the small retailers that sell our category, sell our products are very, very small, marginal with very low capital and our daily servicing model is — allows them to run a legal business with legal cigarettes on a very small capital base and allows us to be best-in-class in daily servicing and we reach about 1.4 lakh markets through our extensive direct network, all this is enabled by using appropriate technology at all nodes to drive efficiency and agility at the scale at which we are talking about a 1.4 lakh markets and the number of outlets that we spoke about.
In summary we are well poised to reinforce our market standing and grow the share of the backlog by leveraging our institutional strengths. We continue to strengthen our portfolio basis our insights, micro marketing strategies, differentiation, internal capabilities, digital interventions and industry 4.0 is used to continuously sharpen our manufacturing capability and progress and remain world best and we maintain our competitive advantage through benchmark product quality and superior last mile execution, which we have always been known for on a continuous basis.
Thank you very much, ladies and gentlemen. That’s all that I had for now. Over to you, Karthik.
Karthik B — Head of Corporate Planning
Thank you very much, Mr. Kaul. The next presentation is by Mr. Hemant Malik, Divisional Chief Executive for Branded Packaged Foods Business. I just want to take this opportunity to tell all participants that they can use the chat box to raise questions, which will be taken up at the end when we have the Q&A session, so please use the chat box. If Mr. Malik is ready, we could switch over to this presentation.
Hemant Malik — Divisional Chief Executive for Branded Packaged Foods
Thank you, Karthik. A very good afternoon ladies and gentlemen. I’m assuming I’m audible and therefore will start my presentation. It indeed is a pleasure for me to be here. And my story today is of a young business with the start-up mindset that has braved against longstanding brands and created a sustainable business with solid fundamentals.
To start with, I would like to share the purpose. Our purpose is to help India eat better and we demonstrated this through our obsession to offer great quality products and exciting innovations that are science-based as well as consumer-led. These have been — the products are prepared using carefully chosen ingredients, made in the right way, to taste better and to do better.
Today’s presentation, I’m going to cover in two parts; the first part is about the business highlights and I would also like to call out some distinct strengths that we as an organization have to compete in the market. The second part is, I will cover our strategy to win where you will see our consumers at big innovation, how we stand in the core and about our strategy towards premiumization. Needless to say, you will find that our purpose of helping India eat better and our obsession to offer great quality and innovation will come right through my presentation.
ITC Foods is one of India’s leading food businesses. It is also one of the largest and fastest growing. Four of our brands are among the top 20 trusted food brands in India. ITC Foods brands are present in more than 50% of stores across the country. We are present in 20 food categories and in the last 10 years, we have grown with the CAGR of 16% is a 4.2 times growth and we are very delighted that one into Indian households use our products. The ITC Foods brand are present across 17.4 crores household. Some of our brands, as I mentioned four power brands Aashirvaad, Yippie, Sunfeast and Bingo. At the same time, we have a set of young brands which will soon reach the state of INR1,000 crores odd in a couple of years; Dark Fantasy, Candyman, B Natural, ITC Master Chef. We also have a couple of nascent brands like Sunbean and Fabelle which operate in coffee and chocolates and we have our latest brand in our stable which is Sunrise, which is part of our acquisition that happened just about a year back.
When I look at the, a brief about my the four power brands and if you look at Aashirvaad atta, it is the number one branded atta and the story here is not just about the fact that it has grown at about 18% CAGR in the last 10 years, it is India’s number one branded atta, it became India’s number one branded atta within just four years of its launch. It is market leader for 15 consecutive years and has more than INR6,000 crore in terms of consumer spends. The other part of the story for Aashirvaad is the fact that Aashirvaad atta has actually led the category conversion, but two decades back, it was just about 1% of the market of atta, wheat, combined, which was in terms of packaged atta. Today, it is about 14% to 15% and 50% of this has been contributed by Aashirvaad atta and we believe that it shows the huge potential that is there in this space as we will find more and more working capital as we find more shift towards packaged commodities that is taking place and some of the examples that we have in front of us, if you look at tea or if you look at branded oil, these are all already about 70% to 80% branded while atta is right now is just about 15%.
The second brand in terms of Sunfeast and we are very proud that Sunfeast cream biscuits is the number one cream biscuit in the category. The whole story for Sunfeast has been around innovation and that innovation in terms of product as well as communication and this is in the cream segment, in the value cream segment we have Bounce, which is India’s number one cream biscuit brand and in the premium end we have Dark Fantasy, which is the market leader in the premium indulgent segment. Mom’s Magic magic was our entry into the cookies space and in just about 18 months of launch, it reached INR500 crores and probably the fastest for any brand in the FMCG space to reach INR500 crores, making Sunfeast India’s number three bakery brand. We are one-third of the market leaders in one-sixth of the time with about INR4,000 crore consumer spend.
Today, in my presentation, I’m going to talk a little bit more about Aashirvaad and Sunfeast. As far as the other two brands, which are Bingo and Yippie, we will keep that for some other date when we will take you a little in more details about that. Bingo, our snack brand, which is known for its unique product and for it’s cut-through communication has been seeing a 25% CAGR over the last 10 years. We are the number one in the bridge segment as well as we are the market leader in South India as far as potato chips is concerned. And if I were to look at the potato chips and the fingers snack segment during the last five years, we have been growing at the rate of 3.6 times of the lead competition and Bingo is about INR2,500 crore in terms of consumer spend.
Yippie was our entry into the noodles category. Yippie came in with a completely differentiated offer of being around which was long and non-sticky and it was the same time when the large number of other brands had also participated in the noodles segment, but we are very happy that we are the second clear second largest instant brand. In just about eight years of our operations, we crossed the INR1,000 crore milestone and our 10 year CAGR of 42% is 5.3 times of elite competition. Interestingly, we have also achieved market leadership in Andhra Pradesh, in Orissa and in Kerala.
We have also expanded our footprint globally. Our brands are getting exported now to 58 countries. And if you look at in the last three years itself, we have doubled our export turnover. We sell Aashirvaad atta, we sell biscuits, we sell noodles, we have taken our entire portfolio and we are opening more and more markets, but we are happy to see that our distribution networks have got set and we also started communicating in some of our lead markets.
Our Chairman was talking about the opportunity in the PLI from exports perspective. And yes, we are participating in the export incentive from PLI perspective and probably we are one of the highest in terms of committed spend and we think this growth trajectory that we have seen is likely to continue in the future.
So how have we achieved this? We have achieved this through leveraging our distinct strengths. So what are these? First of all is our obsession of offering great quality products and exciting innovations. We have a deep understanding of our consumer both regional tastes and preferences, we work very closely between our product development and research and development, a very strong support by our agri business to source the right material whether it is wheat, whether it is fruit pulp or whether it is spices and we have also focus in terms of looking at regional specific blend for our products. And this is an example, both through whether I look at in terms of price portfolio, whether different blends develop for different regions, for our atta portfolio where we have a four different blends to start within the Northeast, West and South. And as we are becoming larger, we are actually — and the fact that we have about 29 to 30 manufacturing locations allows us the opportunity to actually customize even at state level. And today we have customized for instance, for Rajasthan the blend is slightly different than Delhi, because that is what the consumer expects and that is what our consumer research shows.
What we are also very happy to see is our superior consumer ratings. Our consumer product ratings are ahead of competition across multiple categories and I have just put up four of the brands. These are ratings, which are coming on Amazon and you can see movies is 4.5 compared to competition at 3.8 and the same story continues for other brands as well.
The third element of our cross-category competencies of our strength is in terms of cross category competencies and you can see that sourcing when you look at wheat. And when you look at the wheat value chain, we operate in three distinct categories between atta with Aashirvaad, between noodles for Yippie and for biscuits at Sunfeast and this competency supports not only in terms of sourcing, but it also makes a difference in terms of how you look at the product development. And one of the reasons where we can be very clear non-sticky noodle that we have launched and has been a very key success, part of it has been our understanding of the wheat product. The same knowledge is being used in terms of looking at how yield improvement in take place as far as the biscuits is concerned and the same knowledge has been used to develop vermicelli which has been launched with the proposition of non-sticky vermicelli, Our cross-format chocolate expertise is coming in handy. For us, we are leveraging our chocolate knowledge, we have leveraged it for Fabelle as the ultra luxury segment. The chocofill product of Dark Fantasy, the chocolate is coming in, being developed by the team, which is the Fabelle chocolate team and the same has got expanded into our Candyman fantastic range of Mars chocolates.
We have also seen the advantage of fungible manufacturing technologies. The pasta line that we have is now being used for vermicelli. Our Mad Angles line was used to develop no rules, so that allows us to look at capital allocation across categories where you can — when you have excess capacity, you’re able to leverage other category, which are very, very similar once you start getting into it.
The fourth area, which helps us a lot is in terms of target group understanding. Because I operate across so many categories, but if I were to look at the housewife as a consumer, right, I understand about the housewife through studying about atta. We look at the consumer when we are studying about biscuits, we understand the consumer when we are studying about juices and all these different windows to understand the consumer actually gives us a significant superiority in understanding about TG and therefore helps in terms of product development as well as communication development. And of course, needless to say the institutional strength of ITC has been a key framework for actually developing our business, which covers our multi-channel distribution network, our agri sourcing expertise, the packaging know-how, the cuisine expertise from our hotels, and of course the R&D from our LSTC to actually make sure that our innovations are both science-based and consumer-led.
This has resulted in wide recognition. Very recently, we were also awarded the mobile marketeer of the year and that showcases our efforts in terms of digital marketing. Similarly, in our manufacturing, all our ICMLs have been winning awards on whether it is on energy efficiency or in terms of safety and so has our procurement team been awarded the team of the year for ITC Foods.
This also shows the huge potential that is there in the branded packaged food in India. There is the few consumer trends that we can see very clearly, which is going to drive the shift from unbranded to branded package at an overall food category, the categories that we operate in, about 85% is unbranded and only 15% is packaged. The consumer is seeking safe and hygienic food products. They are looking for trusted offer, they are looking for products, which are good quality and free from adulteration and we saw a significant uptick happening during COVID and the brands which more are trustworthy, got firmed in consumer minds.
The rising disposable income, the growth of e-com and B2C, all this supported with conducive macro factors including the attractive PLI in food sector, and I’m happy to share that ITC has been included in PLI scheme across three categories, both ready to eat and ready to book as well as in fruits and vegetables and marine. So with very low per capita expenditure versus other countries we believe India packaged food story is a story of the future.
What are our strategies to win? The first important aspect is a consumer-centric innovation and when we look at innovations, we are looking at consumer insights, we are looking at products which have been developing, leveraging consumer trends. We talk about the new brand experiences which are going to help to build deeper engagement, new consumer touch points for convenience and accessibility as well as new way of looking at media, which can help in terms of breaking the clutter. Our consumer insight process is holistic, is real time and it triangulates various data sources. In the past, the two main source of information used to be market research and to some extent in form of media impressions, but today we have in data which comes in from our customer care interactions, data which comes in from e-commerce where consumers are commenting on our products, data we have, the consumer information and data that we’re picking up from our websites and our apps, as well as consumer activations. So the sources have moved beyond traditional to a large number of unconventional data sources which are all captured in the consumer data hub and we follow a process of social listening, image analytics, AI and LP and the output is inform of insights plus content because we are tracking our consumer 24/7. We are constantly looking at what are these micro trends, what are these — what can be the great consumer golden records and planning and executing personalized content.
Our platform is a fixed sense and I’ll give you a quick example in terms of how during COVID and we picked up a couple of trends in terms of health and immunity, in terms of seeking conveniences and accessibility as well as experimentation at home and we were the first company to actually launch a product, which was an immunity boosting products. There were many of came in, but between what we picked up and I think we were in the market in about 40 days of COVID and the same was also looked at highlighting in the form of communication on both ghee and biscuits. We picked up the trend in terms of the need for safety and our Aashirvaad Svasti Select Milk was launched with report card where the consumer could actually put a message on WhatsApp and get to know what the daily report card of the quality of the product that he or she is buying. It was showing that 27 plus quality checks that we make.
We also found a huge increase in cooking habits and people wanting to cook at home and therefore the entire peas and gravy has got launched under the ITC Master Chef brand name. We also leveraged our frozen food range because the convenience was need of the hour and made the same accessible.
We have always been looking at delighting our consumers through first to markets products. Over the years, some of our unique offers in the market include the first filled cookies, the Dark Fantasy chocofill, the Mad Angles was the unique market product, which was a triangle format and the original style flat-cut chips of Bingo was also the first to market where we were converting bakery format chips to a packaged form. We were the first to launch 100% pomegranate juice, the round noodles I have already talked about as well as tricolor pasta. This journey of looking at first-to-market products continues and some of our recent breakthrough that I am happy to share is our filter coffee and one I have seen the trend that has come in as far as Dalgona is concerned and we have developed, we are the first in the market to give you filter coffee very attractive and consumed in the north and the rest of the markets.
We invested in technology to market or septic PAT format, which allows you to also add fruit bits into the juices and gives you a multi-texture real experience. We’ve launched milkshake with fruit bits. We are the ones who came in with the ruby chocolate, the first in the country, as well as multi-millet-mix and different packaging format for ghee.
We’ve also been looking at catering to the long-term consumer trends of health. Aashirvaad’s Nature Super Food with its organic range of products deliver on consumers’ need of no preservatives and no additives solution. Our Aashirvaad’s Nature Super Food is to address the need of rising the gluten intolerance as well as multi-millet-mix for people who look at going back to the roots. Aashirvaad salt has launched a proactive salt, which is 15% less in sodium, and it is better for heart. Yippie noodles uses goodness of corn wheat atta veg-infused noodles. So we have called out the key value propositions in each of these products, because we are very clearly seeing the consumer trends towards health and towards nutrition.
At the same time, the indulgence aspect will continue and we have a range of premium chocolate biscuit experience under the brand of Sunfeast. Very recently, we have launched choconut dipped and choco chunks under our dessert range. Fabelle, of course the signature luxury dessert collection, which is used a lot in festivals and gifting and we’ve also looked at affordable indulgence which makes indulgence for all both through our Bounce range of biscuit as well as a launch of Candyman fantastic daily chocolate indulgence format.
Our brands are about purpose-led brand experience for consumers. We have looked at future brand ambassadors in the form of working with young children and school kids to talk about plastic and how they can make magic out of plastic. We have worked with interactive cooking workshops along with our ITC hotel chefs and Sunfeast India Run is one mobilize the country in support of all livelihood.
We’ve also focused in terms of offering convenience and accessibility via multiple touch points. I will take a minute on this. We have partnered with airlines. Our range of beverages are available on IndiGo and Spicejet. We have partnered with Inox and when Inox was looking at crafting a meal, a box, the kitchens of India products have come in to partner with Inox. And I would like to make a point that all these products are actually uniquely crafted and our ability to actually develop products and work with partners and create proposition which are relevant for their set of customers make a difference to ITC. We are available — we have tied up with Amway and we have a range of mixed fruit juice. We have a range of — we have launched ABC which is Apple Beetroot and Carrot, which is powered with the with nutralite, We have worked with the Domino’s to you know when Domino’s was looking at shifting from CSD to something which is healthier and that’s how B Natural is now available in on Domino’s. ITC Store of course is our attempt at B2C, now across 11 cities where you can order our 700 to 800 SKUs and it is — I think it will get covered later in the digital section.
We have also created home cards for Frozen. We recently tied up with [Indecipherable]. So we have about 100 odd carts in Delhi, which make the Frozen item available near you. The Frozen item I believe is in the stage, but you have to create the category and therefore creating more access and more touch points is what is going to drive the category growth. We have used innovative media approach to break the clutter in terms of co-creating relevant content for Candyman Jelimals and which is now one of the top adventure shows on the kids’ space. We have looked at dynamic integration of offline plus online with Dark Fantasy out of home and we have started to participate in the e-sports space with the Yippie because we believe there is a big growth opportunity in the e-sports arena and it’s important for brands to be there, right in the beginning.
We’ve used cutting edge digital tools and techniques in terms of a our sixth sense, we do a fair amount of in-house content creation. We have a team to which develops creative and make sure that moment marketing comes. At the moment, there is an opportunity to actually leverage our brand. We have also worked on hyper personalized content creation and deployment. This comes in because of our customer data hub, which has a very large base of customer audiences, which we’re able to segment and therefore this is an example of Aashirvaad, where we actually were able to be at about 100 different creatives and target to our customer based upon need state based upon their psychographic profiles.
We’ve been working on AI based diagnostic tool for creative evaluation. So it has done a historical audit of all the creatives that we have ever used and has been able to give us an idea in terms of what is the creative, which is likely to work better and all our ads go through this diagnostic AI based diagnostic tool before they get into the market. We’ve been tapping into communities where digital media cannot reach and this community management platform uses again the power of data analytics and machine learning.
Coming to the next section, which is about strengthening the core. The area that we talk about is launching range and of value-added products. So when I’m looking at strengthening the core, how can I strengthen my core. I can look at expanding the range, I can look at expanding and launching value added products, depending upon the consumer needs, I can look at leveraging the power brands to adjacent categories and the Chairman has shared some examples of how our power brands have been leveraged across adjacent categories and I’ll talk a little bit about them. We look at addressing emerging consumption moments and extending into newer and alternate channels.
So I’ll come to Aashirvaad. I did touch briefly about Aashirvaad in the beginning. Aashirvaad has been driving branded conversion while maintaining price leadership and I’m giving you an example of two of our large region, which is north and which is — and the other is south. And as you can see, the objective for the brands are very different in both the regions. In the north, it is about shifting in behavioral choice. Choice means where we are looking at converting consumers who are buying wheat and lose atta towards packaged form and this is an example of four-step process, which also motivates you to be four-step forward and it is actually giving the assurance to consumers in terms of how the packaged atta in terms of quality in terms of process is as good, if not, better than whatever you might be consuming today. And we are seeing that there is a huge opportunity for this conversion. And all our brand efforts in the North is focused in terms of shift in behavioral choice.
In the South, the challenge is a little different. The penetration levels are quite high. What we need to do is look at increasing the occasions of usage. Today, it is just about two new [Phonetic] locations out of 14 that atta may be used. But having said that, a few years back, that was 1.4, that has moved to 2. And the power of Aashirvaad in terms of our — the mental availability of Aashirvaad is huge. We have top of mind awareness of more than 90%. So, any time if somebody thinks of atta, it — he or she thinks of Aashirvaad. And this is what we are leveraging in terms of communicating the versatility of atta by educating consumers with atta recipients. So, we have put in thousands of recipes on various ways of what all you can make with atta. It’s not just about the chapati or paratha, but going beyond into even making cakes and bread.
In terms of moving to more value-added products, our big story has been about atta with multigrains, and the consumer insight has been about leveraging the high fiber — the story of high fiber atta for better digestion. This is something that came in from our consumer work, and why people consume multigrain atta? What is the role that the extra fiber does? And in fact, I’m going to share a small communication with you, which has done exceedingly well for multigrain atta.
[Video Presentation]
This idea about Happy Tummy for Happy You is being taken forward, and we have developed a unique digestive quotient from Aashirvaad, which actually is an exclusive platform for digestive health, which is very clearly when we did our consumer work, this was one of the most significant needs from consumer perspective. And this platform will be a one-stop solution for blogs, expert videos and nutritionist consultants, as well as for high fiber recipes.
We have looked at augmenting with sugar release control atta. This is a specific solution for people in need of sugar control. And this is — we have used this to develop a browser-based video calling to facilitate easy consultation. We have a panel of dieticians working remotely across the country. And you can drive a call to action, after that it can — it looks at in terms of — you may have — also option to buy and — where you can come to our itcstore.in to purchase or you can be directed through any of the e-commerce site to make a purchase.
Moving beyond atta, we have looked at the adjacencies, we looked at bringing relevant cooking solutions for the homemaker. So, Aashirvaad, of course, is in atta with a select and multigrain and SRC. We’ve expanded our space in terms of looking at the health and wellness solutions with the gluten-free, with multi-millet mix. We also have entered the organic portfolio. And of course, in terms of convenience and we found there’s a need coming in of convenience or ready to kind of cook chapatis, and that has been — that is right now under the pilot in Kerala. The brand Aashirvaad is operation in salt, as well as in spices. We are the market leader in Andhra Pradesh. And recently, we have also made a reasonable entry in the breakfast solution space. Because Aashirvaad was mostly in the main meal, but with entry into vermicelli, it offers the opportunity for the brand Aashirvaad to be used under — in snacking occasions, and there are a few other platforms that the team is currently engaged with in terms of developing the propositions across other breakfast solution — Indian breakfast solution opportunities.
We’ve also expanded into some other adjacencies in the form of fresh dairy. This is focused only in two markets, in Bihar, as well as in some parts of Bengal. The portfolio includes milk, dahi, lassi, paneer, as well as mishti doi. And Aashirvaad ghee is now available across all the e-comm platform as well as focus in southern markets and Delhi, and it is known for its unique slo-cook proposition that leads to great aroma. This is cow ghee, highly recommended.
Moving to Sunfeast. I did mention about Sunfeast that the role of Sunfeast has been to create excitement in this category. We entered much later. There have been large players, and therefore, it was important to say what is it that you are going to make a difference. And I think for us, the portfolio of innovative offers, and I think we are very proud to see the number of new offers that we have put in. Dark Fantasy, I briefly talked about. The range that Dark Fantasy has expanded into. The same technology of fills is getting used in terms of — with the Bounce — with the brand Bounce as well as in terms of having a full dark chocolate fill products. There are many more opportunities that are there with our product team continuously is working on. And apart from the fill technology solution that we have developed, we also launched many other firsts. In the cake space, we entered about a year and a half back. We have our unique Trinity solution, which is a three-layered cake. We are the first in the market. We’ve launched — when we looked at Digestives, we’ve launched with 5-seed Digestive. We’ve taken inspiration and we’re the first in the market to launch all rounder, as well as in terms of Veda Marie Light. I think these — important point [Technical Issues] Sorry. I’m going to play this ad, which is on Dark Fantasy Choco Fills, and the thought behind this ad has been how do you create more occasions and a specific occasion where Dark Fantasy can be consumed.
[Video Presentation]
So, this innovation and the — at the premium end, and if you were to look at the biscuit market, and if I were to divide it into three segments on basic, value and premium, and at the premium end, we are seeing consumers seeking better sensorial experiences, and that has been a focus area for us. And today, we are the market leader in the premium end of the market. We have 26% share of the premium biscuit segment, which is 1.5x the largest competitor in the biscuit space. It includes brands like Dark Fantasy, Farmlite and all rounder.
We’ve also been focused on strengthening the core with thought-leading ideas. Mom’s Magic is our entry into the space. And we’ve actually used both the proposition of consumer heart, as well as the ability to make and put — it is the first biscuit where you can actually — it’s got a visual on top of the — on the biscuit and it required a lot of technical intervention to make it to happen, but I think what it has done for the brand is make sure that there is a heart in every biscuit. I’m going to play the add for Mom’s Magic communication, which was recently went on the air.
[Video Presentation]
So, our ambition is to be the most preferred bakery brand in India. We want to make consumers reevaluate their existing choice of biscuits and upgrade from the leaders. We want to build love marks in each of our brands with the solid idea brand each one of them and a strong point of view. And you can see that — I’ve listed our key brands. If I look at Mom’s Magic, it’s about helping mother work their magic that makes everything feels right. And the point of view is the warmest super power. Sunfeast Bounce is about a bounce out the fun inside every one. And the Farmlite proposition is about, it’s not just about just digestive, it’s about digestive, so you’re adding zest to health.
I’m going to cover a short story on B Natural. B Natural is one of our recent acquisition. It’s been just about since 2014-’15 that B Natural, which operates in the beverage space. And we were a brand coming in after almost two decades of the market leader being there, and therefore, it was important to create a proposition which was distinct. And B Natural is the first juice brand which is made of 0% concentrate and made of 100% Indian fruits. The ethos of being an Indian brand and to develop the Indian farmers, and therefore, the focus was in terms of developing product which uses Indian fruit pulp and not imported concentrate. Today, we are India’s clear number three brand. Our proposition of fruit and fiber is extremely powerful and well received. We are the second largest player in modern trade with almost 24% market share. Our — we have looked at premiumizing the juice portfolio. The premium juice portfolio with Ratnagiri Alphonso and Dakshin Guava, and is the — is all focus in terms of source of origin story, and I did talk about how we were the first to come with immunity range product at the time of COVID.
We also focus in terms of tapping unconventional route to market. If you look at modern trade and we are the number one — we are the market leader as far as the Reliance Retail is concerned, which is the largest retailer. We are also probably top one or very close to second as far as the Amazon — as far as Amazon is concerned. And we are focused on developing institution partnership, and this comes in because of our unique PET technology. I mentioned we are available in IndiGo. I did speak about our tie-up with Domino’s and Amway. And very recently, we’ve also available in McDonald’s, and the happy meals for kids has B Natural specially crafted juice available on McDonald’s as well.
The last section is about driving profitability through smart manufacturing, through cost management, through mixed premiumization, and of course, value accretive acquisition. We saw briefly in terms of how the state-of-art manufacturing infrastructure has come about. We have integrated ICMLs across nine food categories. 75% female workforce in our Pudukkottai and Mysore factory. And I’m going to share a brief video about our — it’s 1-minute video on our ICMLs.
[Video Presentation]
So, how does this smart manufacturing help us? We have a distributor manufacturing network of ICMLs, which drives freshness, reducing distance to market. It makes a difference in supply chain optimization, because it minimize material handling and optimizing market servicing. We also have co-located warehouses, which combined loads, which then goes straight from the warehouse to the distributor, because we are combining load across multiple product categories, makes a difference in terms of our overall supply chain costs. We’ve worked on people capability, multi-skilling. Today, our multi-skilling is not only between the primary processing and packaging, a multi-skilling happens across lines. So, the person could be working on the juice’s line today and tomorrow when it is winter and there is the requirement of juice may be down, the same person can go and work in to the snack’s line, which at that point of time has a much higher demand coming its way. So, it makes a difference in our people. So, we need to invest a lot on capability development and make sure that our productivity goes up. The shared infrastructure across common utilities and amenities make a difference in terms of scale benefit and reduces our fixed overheads.
As you can see, our manpower productivity has gone up by 1.4x in the last two years. Our energy efficiency is up by 1.2x. Some of the other levers that we are working on is in terms of Industry 4.0 for Manufacturing Excellence. A large number of renewable energy projects are up and running. We’re working in terms of process automation as well as in terms of packaging know-how. We work in terms of — we have a very diverse portfolio of products, and therefore, procurement landscape and the digital initiatives in procurement make a huge difference. We are — we have one of I think first of its kind digitally enabled procurement system, which will be talked about in the next section. And we work on track and trace and robotic process automation using BOTs.
In terms of premium — in terms of profitability, I think premiumization is a very important vector. We have been successfully premiumizing the portfolio across our categories. For the [Indecipherable] business, it is about the premium Select atta as well as the Multigrain atta. In Dark Fantasy biscuits, we have talked about that. At the same time, we looked at the premium end of juices and all the years we measure in terms of how — what kind of share have we been getting about in the premium end. But I think the difference is also the consumer insights, which goes in terms of developing these solutions, which make the consumer willing to pay a premium for these offers. We also developed SKUs, which are more MT and E-Comm focus. In terms of the pack sizes, SKU — specifically crafted SKUs, and soon we are also looking at specifically crafted products for some of these channels.
Driving profitability through brand extension as we get into — as we are into 20 categories and we always continue to look at in terms of which are the brands that we can actually leverage. To give you an example of milkshake, right, so we have the Sunfeast brand and we have got brands under Sunfeast milkshake. When I’m looking at in terms of developing a chocolate shake, I think the Dark Fantasy brands come — has — have a very great synergy with the milkshake product as well. And it is unique to us because we are across certain categories, and therefore, these brands are easily extendable. Candyman has gone into Candyman Fantastic. The ITC MasterChef, which started with frozen food, is available across spreads and dips, across cooking paste and gravies. And of course, extending the brand within the category with different types of product, as an example, of Aashirvaad. This is another source of making sure that the brand investment costs are managed as we get into adjacent categories.
Finally, in terms of value accretive acquisition, Sunrise, which was of 70-year-old brand and the number one brand in West Bengal in spices, having a strong cultural connect with Bengal, and offering a great range of blends with high-quality differentiated and regional products, and good profitability and returns. It matched very well with ITC’s market leadership in pure spices in AP, with a Pan India network of direct procurement from farmers, with our expertise in quality crop development, and our expertise in large scale quality material procurement, which will drive cost efficiencies, and leveraging the wide distribution network. This was a great match in the last one year and a few months. We can see that we have been maintaining the momentum in the ongoing business. We have driven new distribution points in terms of modern trade and e-commerce. Our expansion to other markets of East has commenced, and we can see our shared gains as well happening in those markets, too. We have driven profitability through integrated supply chain, looking at procurement savings as well as cost efficiencies, as well as increased presence in touch points on including digital presence as well as to reach out to the non-Bengali audience. I’m happy to report that post-acquisition, integration has completed successfully, and we are on track as per as acquisition targets.
In summary, I’d be — in summary, the ITC foods business is well poised to sustain high growth trajectory. Our chosen categories offer immense growth potential. Our future-ready portfolio and — are able to leveraging our power brands. Our science-based R&D will help us to fuel further innovation. We continue to explore new vectors of growth basis our deep consumer understanding. We are harnessing digital and analytics through cutting edge AI and ML interventions, both in terms of consumer space as well as manufacturing space. We will drive profitability and capital productivity through premiumization and leveraging value added adjacencies. Smart manufacturing, which will to delayer operations and to distribute — and distributed supply chain. Capital efficiency through working capital management and improving capacity utilization, we believe is a strong foundation for rapid and sustainable growth, both in scale and profitability.
Thank you.
Karthik B — Head of Corporate Planning
Thank you, Mr. Malik. That was a very comprehensive presentation on the Branded Packaged Foods business.
Ladies and gentlemen, we will take a 45-minute break and come back at 2:15. But just before I leave, just one last comment. Again, asking you to use the chat box to post your questions. And we’ll take a break now and be back at 2.15 pm, just about 50 minute from now. Thank you.
[Video Presentation]
Hello, and welcome back. Thank you all for being with us in the post-lunch session. We now have a presentation by Divisional Chief Executive of the Personal Care business, Mr. Sameer Satpathy. Over to you, Sameer.
Sameer Satpathy — Divisional Chief Executive – Personal Care Products
Thank you, Kartik. Good to be here. Good afternoon, everyone. Before we start, I just want to very quickly take a slide to introduce the Personal Care business to you. The Personal Care business is in primarily four segments. The first one is Personal Wash, which is around INR20,000 crores with the brands of Fiama and Vivel; Health & Hygiene with Savlon; Fragrances with Engage; and Home Care with Nimyle and Nimeasy.
We have been growing to a focused strategy with approximately a CAGR of 19%. With the help of our power brands, Savlon, which is a leading player in Health & Hygiene, done well since we have acquired it from J&J. Fiama, which is positioned on the joy of bathing, it has body washes, it has unique gel bar and a lot of bath accessories. And Vivel, which is the regional leader in the East and Engage which is the number two brand in this category.
The growth levers, the strategic levers as we call them, there are five of them, and I’ll be taking them — taking you through them. So the first one is building brands with purpose. We believe in ITC in the triple-bottom line, and our brands reflect the same. So we anchor needs in higher order social and consumer needs because we believe that brands need to give back to society as much as they take from society. It’s a symbiotic relationship and there is give and take. And if we do that, brands grow and society grows and it is good for both.
So when you look at it, in Savlon — so Savlon, we are building — we are talking about healthier India with healthier kids build a healthier India. The belief is that if the kids are healthy, the nation is going to be healthy. We have invested a lot into our very large school program, almost 16,000 odd schools and 5.7 million children. In the pandemic, schools being closed, we redirected the effort into hospitals and doctors. So a lot of work in that area and also public service messaging.
For Vivel, we talk about a more equal society. Women empowerment is what it is — the purpose of the brand is. Fiama, we talk about mental wellness. And for Engage, we talk about gender equality because there has to be a respectful and gender sensitive piece of communication because we tend to influence young people. And it is — as responsible advertisers, we need to put on the right imagery and right more role models for our children.
The second and the main lever for us is how do we grow in future-facing categories, and this is most critical. We have entered a number of categories. And over here, these categories are deodorants, body washes, hand washes, disinfectant sprays, floor cleaners and dish wash liquid. They have some things in common. They are underpenetrated. They are high margin. And we through our efforts have taken pole position. It’s a combination of innovation and market development. Also what we have been able to do very well is that we have been able to upgrade consumers. And as all of you know, upgrading consumers is little cheaper than just share gain. And this gives us — because we are able to create — because it is high margin and high growth, we are able to create investable surplus, which we are able to invest to grow our brands.
We also combine that with a lot of innovation because we believe that if you’re first, if you create new occasions, you can grow the category faster. And because you can grow the category faster, you also gain share. For example, in pocket fragrances, we created a new category, which is an out-of-home category, and it also created a new occasion to consume the category. As you know, the perfume category in India is underserved and underconsumed. So this creates another way of increasing the pie and us taking a major share of it.
The disinfectant sprays under Savlon, I think most of you would be — would have used some of it, they become ubiquitous during the pandemic, and this was a very large innovation from us for the pandemic. And likewise, we have a number of these innovations, the gel bars is another. So anybody who has used a gel bar, this is proprietary technology and consumers keep coming back for more. So in that way, we are able to grow new categories and grow them faster and grow them more efficiently than competition.
The third lever is how do we innovate to upgrade from — to liquids. The largest category which we operated is Personal Wash. And if you look at Personal Wash, it’s a very competitive category. It is very highly penetrated — soaps are very highly penetrated. So we identified a segment over there which was high margin and was growing very well. Liquids, as you know, some of you would know, have been growing at the rate of 18%, 19% CAGR for the last few years, while soaps have hardly grown. So it’s high margin and high growth.
Over here, when you look at India, the penetration of liquids is very less. And when we look at countries, they are 10 times, 11 times, 12 times of our size in terms of penetration. This penetration is happening, and how can we accelerate the same has been a lot of the marketing efforts. So the key thing for the marketing team is how do we create this category relevance. I’ll show one or two pieces of communication just to demonstrate the fact. It could be to have a deeper insight on why consumers could upgrade. It could be just information also because the information sometimes also makes people reconsider their choices.
[Video Presentation]
The second is from our brand, Vivel, which talks about upgradation from soap.
[Video Presentation]
So one is that you create relevance in the mind of the consumer. The second is that you also have to make it affordable. India is still is a country which is emerging and there are a lot of aspirers out there who want to upgrade. So how do we get the price of the liquid equivalent to that also. So this is where a lot of our innovation and our R&D teams have been working and today we have products in the market, which are delivering cost per wash, which is almost equivalent to that of so whether be in hand wash or in body washes. So what we are doing with that is we are taking price out of the equation and attacking category by arrears because we know that it is only a matter of time that there is a tipping point. And if you’re able to grow these categories through innovation and grow them faster, we start to gain because we have higher market share and we’ve already taken a higher position in these categories of the future.
So in line with that if you looked at it two years back, we were at — in the total Personal Wash category, we were at around 14.7%, now 25% of our total sales in Personal Wash comes from liquids. This is much faster than the category and the point I keep to belabor the point, the margin play in liquids is much more than soap. So that gives us a lot of more investable surplus which we put behind our brands.
The fourth thing is winning in the channels of the future. So not only the categories of the future, but also channels in the future and this is important, because consumers, new-age consumers who are more likely to adopt newer categories are going to be more e-com focused, more modern trade focused. So for us to win there was very critical and I’m happy to share that in — as far as personal care is concerned, we are at double digits of our sales comes from e-commerce before the industries around 2%, 2.5% as per Nielsen. We have done it through various means because at the level we have great partnerships with the various players out there. We have a great supply chain and we have also designed the portfolio for e-commerce. This has helped us gain share. This has helped us get new consumers and more importantly, get penetration of new categories with these new-age consumers.
And as we go along we realize that we need to take this further because there is a change happening in FMCG and it is happening in the digital front. D2C brands or digital first brands. So we have an inorganic play, which we have investments in Mother Sparsh and we also have our homegrown brand Dermafique. The whole idea is that these are places, which are going to be disruptive, these are places where the consumer is always changing and reconsidering her choice and there are also capabilities which are different than our traditional brick and mortar play. This also gives our talent exposure to the best-in-class techniques, because when you try to grow our brand organically, you tend to obviously build certain capabilities and also when you have access to partners who are also in the space, you can get in learnings which can make this growth journey even faster. So whether it’s talent, whether it’s capability or building brands, we are on a journey of investment, we are in a journey of disruption and we feel that this could be a place where in times to come we could see disruptive growth and also a lot of value creation happening.
Last but not the least, we have always prided ourselves in ITC to grow brands internally, but we have not shied away from looking at value accretive acquisitions. We have looked at opportunities across, but we have only invested where we feel that we were able to scale-up these opportunities I talked to you about two of them; one is Savlon, the second is Nimyle. Savlon we have talked about before also in the public domain, it’s around 14 times from the time we acquired it. It’s been a great journey over there, but the second one with sometimes most people may not be completely aware of Nimyle, because it was basically a very small brand in the east. We acquired this brand and it is already 5 times from the point we acquired it three years back. What Nimyle gives us is a great play into homecare and it is one of the — it is the only large-scale brand, which is based on naturals. So we have in it, in this brand a way of pivoting and segmenting the category in a manner to our advantage.
And whenever we do acquire a brand, the other thing which we do is we put two engines on it; one is our innovation engine, the second is a distribution engine and I’ll talk to you about both. So if you look at Savlon, Savlon soap, we have been able to, we have over-distributed 2.3 times since acquisition. When you look at Savlon hand wash, it is 400 times, it was hardly being distributed. Nimyle also we have been able to take it 5 times. So we have really used our distribution engine well.
And I’ll talk to you about the innovation engine when I’m taking to through us very small case study on ITC Savlon. So Savlon went up 14 times, but I think what is not known is the margins went up by 600 basis points. It went up by 600 basis point because we were able to go to a more profitable mix, one. Second is, for anything which comes in, like with any other brand in ITC, we have our cost program which we run the brand through and that squeezes out any kind of fact which might be there, any kind of wastage which might be there, so that we can take all that money and put it back to more productive use, which is to the consumer or to the customer.
When we got the franchise, 90%, 95% of the sales came through these two packs and today the innovation engine has been able to completely transform this franchise and that is one of the reasons why our margin has increased. So we have this play and we are using it and we’re on our various acquisitions and we will continue to use these engines of both our distribution engine and our innovation engine to grow in the organic opportunities and scale them so that we can have value accretive innovations.
Coming to Savlon. When we acquired this brand, it was 50 years of heritage. It had some strengths of gentleness. There was — it was an orange color, which the brand kind of owned and there was some design pieces which it on, but there was a problem and the problem was that its strength was that it did not burn, but consumers then questioned its effectiveness saying that if it does not won, how is it effective. As all of you know, it is actually a superior formulation, but communication could not solve for it at that point of time. So when we acquired the brand, we thought about it and said, what is that we need to do. And what we did was we converted its weaknesses into its strengths and we started building on its equity on doctors most trusted brand. So yes, Savlon is the doctors’ most trusted brand and we use this and it became a double-whammy because we had both the expert performance and trusted by professionals coming in through this line and because of which we were able to really scale-up the brand and this was very, very critical, especially in the first two, three years when we had just acquired it.
The second thing, which we did was we built purpose into the brand and purpose is something which is very, very important. I think it gives a lot of spirit to the brand, it gives a lot of emotion to the brand and brands are emotional and you need consumers to react to it in the emotional manner. So we had very large school programs. I have talked about it this before. 16,000 odd schools, more than 5.7 [Phonetic] children. We were teaching them about hygiene, how to wash their hands, how to have hygiene habits. So that if they do that, then they would not fall ill as much.
The second thing, which we did was in terms of taking the hand wash and making it more and more affordable. So when we started to when we are today, the price per wash of a Savlon hand wash has come down to 10 paisa per wash, which is almost the same as what we would do, if you used a soap. So today the category is in a good place and we will be able to grow it, as we put more and more educative communication and more and more consumer education and that’s what helped us also grow as a business.
The second thing is, for example, the [Indecipherable] was also a great innovation. One of the problems we had, in terms of cost was that, whenever you used a hand wash, you have to have a pump. So we gave this challenge to our teams and said, hey, can we have an hand wash which can dispense without a pump. So this is a pack which can you kept on your skin and it is a squeezy pack. So you can easily dispense the liquid and is only INR15. So all of these efforts and there are many more efforts in the pipeline will help us grow the category and may give access to more and more consumers for the brand.
The other one I think I wanted to talk about, I think in the Chairman mentioned it briefly, but I think it was a purple patch as far as we are concerned in ITC and also the brand. We at ITC have always seen as national champions. We have always felt that we are a brand point for India, made for Indians and innovating for India. So when the pandemic struck, one thing we were clear about is that whatever the requirements of society, what were the requirements of people, we should be able to fulfill it. So it was rapid innovation and innovation at scale. So we launched a number of products and whether it was wave one and wave two and we scaled them up. And this happened because of a combination of factors whether it was the R&D teams, which were working through and through the pandemic with labs in India or abroad, getting the products formulated, tested and out into market whether it was the marketing teams getting in, picking up weak signals, picking up latent signals, latent needs and feeding it back and saying, this is what the consumer actually want. This is what will reassure her more. This is what is technically we will have to say.
So your — the product parameters have to meet that. Whether it was the manufacturing teams who had to manufacture overnight millions and millions of cans or cakes of soap or liters of sanitizer and some of you would have seen news reports that we overnight converted one of our perfume factories into a sanitizer factories etc right at the beginning of the pandemic and/or whether it was our sales and marketing teams sales teams, which made sure that the product was available it didn’t shelf. I think it was a fantastic effort. And above all, I think it was the team of young managers, middle managers who were given this challenge and who I think came through it with flying colors. So we are very proud of them of what they were able to achieve. And I think we can say with lot of confidence that the system was stress tested during this period and we were able to do well for not only for the brand and the company, but also for the nation.
And this was also helped by the fact that we had started working on a lot of these innovations. We have looked to be best. This was a platform-based approach. So we have lighthouse projects which are five years, hence three years ahead, 10 years ahead. All we did was we accelerated them and made sure that they were there for consumers when they needed them and there is always a pipeline of products out there with us, so that whenever there is a need or investable surplus, we can use innovation to and invest into these brands.
We’ve also received a lot of recognition globally for our efforts and some of these, we are very proud off. I just want to call out a couple. I think we won the first-ever Grand Prix for creative effectiveness, I think is the first win by any company, not only in India, but I think in Asia and we were also part of the Cannes Lions Creativity Report of the decade. There were 10 case studies for the decade or 10 brands, which were picked up and Savlon was one of them. So these are all I think great markers that our marketing teams are coming of age and we are competing with the best in the world and are doing very, very good work.
So coming back, if you really know when we started, we said that at point of clarity on performance. I think now when we look at our data now in some of the centers, we have caught up lead competition in some of the centers, we have not, but in some of the centers like in Calcutta we are on performance. And the second thing is on some centers like moisturization scores, we are ahead. Now what does it mean? It means consumers who were at some point of time questioning whether the brand is as good, are saying it’s as good and they’re also saying, hey, you’re better in some parameters. What that does is in the medium to long term, it gives us another lever because now you are in a very large segment able to say that even compete and you can differentiate. And as you all know, in our business, the ability to differentiate and differentiate well gives you a lot more than if you were just a me-too product. So we are working on this. And there is communication of this kind, which is going out which is saying not only protection, but also gives you moisturization for best of two worlds. So whether there is COVID or no COVID, I think this is a great thing for to use for your family.
But the innovation engine chugs along. We will keep pushing boundaries and we are pushing boundaries with this work, which we are doing. We have Savlon nasal spray. Its first of its kind. What it does is, it is a preventive to COVID. This is a challenge we throw to our scientists and said, hey, is there something we can do and is there something which as a company, as a brand, we can do and we have tested this product with third-party labs and there are some intermediate testing which has happened and it’s clear all of that. We have got permission to do clinical trials, which the ethics committees have given and there is a large scale clinical testing, which is on as we speak. But if we clear all of that I think it’s going to be something which is very useful for society and this would be a great contribution from our side in the fight against COVID.
So all-in-all, in summary, we are focusing on future facing categories as they give us huge headroom for growth and we will continue to drive growth through penetration and market development. Science-based R&D platforms are barring innovation and speed to market and our purpose less brands backed by impact full communication, deep consumer engagement will continue to grow. We think we are well positioned to seize the emerging opportunities to drive scale and profitability.
Thank you very much. And I hope that I was able to explain some of the stuff, which we are doing internally in the Personal Care business. Thank you.
Karthik B — Head of Corporate Planning
Thanks, Sameer. Very interesting presentation. May I now request Mr. B. Sumant to takeover for his presentation on how Digital is powering ITC NEXT strategy.
Over to Mr. Sumant.
B. Sumant — Executive Director
Good afternoon, ladies and gentlemen. It’s my pleasure to present to you what we’re doing in the digital space. Now a lot of what I’m presenting is already been covered by my colleagues, but that’s just you know a testimonial of the fact that digital is used across the organization. I’ll now walk you through our thought process on digital and how we find this as a key pillar and how we’re driving it in the organization.
If you look at India today, I think the country is going through rapid transformation. You look at the smartphone usage, it’s hit 170 million and the digital payment gateways are being driven very aggressively by the government and the adoption rates are phenomenal and there is a plethora of new start-ups in the digital space also there come about. I think we’re looking at a complete shift in the kind of consumers that you have today. The modern consumers are digital native consumer and the current generation, they like to make a statement. They are proud of who they are, and they want to focus on themselves and invest in themselves. They see culture. We believe in following their passions, they want instant gratification. They are also great advocates for change and they are not afraid to espouse the cause, they are extremely connected and they are very comfortable using multiple technologies and are used to having information at the touch of a button. So all this actually makes this a very, very different kind of consumer who has emerged. And for organizations to do well, one has to understand the consumer very well and be able to adopt, not just your products, but your entire business model to meet the needs of this consumer.
If you look at consumer behavior in the FMCG landscape, we find that use of smartphones has become part for the course. People like to use it, not just for shopping, but also for a lot of content today is consumed on the phone. If you look at IPL, significant numbers of people watch it on the phone and Hotstar. Similarly, people prefer to watch and enjoy experiences in the comfort and safety of the homes, thanks to COVID and connected devices like the watch I’m wearing has become pretty normal where you have a combination of physical and digital experiences melding into one.
In terms of channels, the e-commerce channel has really galloped in this — especially during COVID. E-commerce used to be a channel, which people looked on for huge discounts, but I think it’s moved well beyond that. It’s now a channel that people go to discover range, variety and of course for convenience, right. The convenience of home delivery has really came home during the COVID period and I think is here to stay. So it’s now a channel that offers range, convenience and of course attractive pricing. Direct to consumer models are a complete boon for the FMCG industry. We’ve always been disintermediated from our consumers by retail, but with the D2C capabilities being developed, it’s possible for now brand owners like us to engage with consumers and build that relationship and that’s what will be lasting and can be sustained going forward.
Hyper delivery models have also come in, you now see the current wave of 15 minute deliveries that Swiggy is offering and [Indecipherable] and so on. So this is here to stay. What these models are trying to do is replicate the kind of convenience that the local Khirana [Phonetic] offers where there is somebody in the shop, you can always do home delivery. And I think the digital models are trying to replicate what we’ve always had through Khirana, through our neighborhood Khirana. But this is another trend and companies need to adapt to be able to do these going to requirements, and these have a lot of implications for how you design your supply chain and how you do your fulfillment. I’ll talk more about that as I go forward.
Analytics. The fact that everything is being done digitally allows you to capture data at every touch point in the transaction and this allows companies to analyze the data, mine them for information and use very advanced technologies like AI and ML to come up with insights, which are not all normally obvious. So analytics is here to stay and is going to be a serious source of competitive advantage.
I’ll now take you through our journey, the digital journey that ITC is going through. In fact if you look at ITC, I dare say that if it looks like the same company, but if you look under the hood you’ll probably see a completely new organization which is like digital insight. This is how we started our journey. We were one of the first companies in the country to launch a sales force automation application way back in 2007 and since then we’ve had a lots of inputs. In 2016, we set up our dedicated e-commerce team within the trade marketing and distribution set-up. There is a complete dedicated team that focuses only on the e-commerce channel and that team has been able to help us catapult our growth rates in e-commerce, especially in the recent COVID period when people are shifting to e-commerce, our growth in e-commerce has been phenomenal, far ahead of most of the companies in the industry.
We’ve had a series of launches. But one thing I’d like to call out in this slide is if you look at the last three years, the pace of digital has grown exponentially. Today, we have initiatives in every single aspect of our operations. Whether it is improving work processes, automating work processes through the digital person or the chat box or the RPS or it is one ITC which actually leverages the entire transportation and logistics buy of the company and gets organization level synergies. I think I dare say that today we have one of the most efficient and low cost transportation networks in the whole country because of our ability to put all of the T-lanes together and negotiate with vendors, because we offer through our network of routes we offer in a backhaul routes for the vendor to also find efficiencies and that gives us efficiencies. All of this is possible only because of the one ITC initiative.
If you look at some of the others and I’ll cover many of the initiatives in 2020 and 2021 in my subsequent slides, but you will see that there is all plethora of initiatives covering operations, procurement, employee enablement, consumer inciting, consumer experience, complete gamut. Let me start with Insighting. So we have set up our sixth sense customer data hub several years ago. One of the key things that we did in that is every single touch point that the organization has whether it’s email, whether it is a phone call or whether it’s social media comment, digital campaigns, our marketing activities online, visits to our websites. All of that comes into one single repository. Just to give you an idea, we get about 5,000 social media post a day, we get about 150 calls a day. So we got massive number of data coming into our customer data hub and all of these we then analyze. So we have tools that analyze social conversations. For example, if it’s a conversation about health, if it’s a conversation about nutrition, about spirituality, you name it. So we actually have tools that will tag all the key words in a conversation, group it and create cohorts, which we can then use in improving our targeting of products, services and communication.
Similarly, we have tools we image analytics. So today is very common for people to post an image and write some text to it. So you also need to know what is the image conveying. Is it brownie chocolate cake or is it a fried snack. So we have things like Google Lens which we used to analyze the image content. We have other digital image analytics tools for lookalikes. There is a lot of the issue today we have with counterfeiting and people passing of products which look similar. So we have tools, which can actually detect anything that looks similar to anything that we have and that is used mostly to figure out if there is any infringement of IPs that are being done. Consumer journeys every time you on one of our digital assets, whether it’s our websites, our e-store, we look at how the consumer interacts with the content on the site, everything from first landing on the site, clicking and checking out is something that we learned from and that helps us improve our value propositions, as well as create cohorts.
The next part is content. I think the days of content creation of running ads on television are long over. The current digital trend, you have to look at taking your insights, sharpening your focus and then being able to develop content that meets the requirements of the cohort that you’re targeting. So today on insights, we have a very vast set of first-party data, which we’ve coupled with third-party data to further refine the understanding of the cohort, right. So we have what 50 million of first-party data and about 650 million of third-party data. All of this helps us really sharpen the content and we now have digitized content. For example, if you want to post a banner on Facebook, right, you actually modularize the content, so that the background, the text, the font, the language, the characters in the ad can all be changed, depending on the audience you’re talking to. So we really, we have AI engines that actually in real time assemble content server to a cohort, do an AB testing, see what works, what doesn’t work and then change the content and also change the channel in which you post the ad. So both for content creation and deployment, we use the AI tools who would significantly increase the effectiveness of the content that we use.
Just to give you an idea, if you run campaigns, you could run a campaign, which is a call to action where you run a banner you want somebody to click on it, go to a site and purchase your product, right? So you want to know the click-through rate. The click-through rates typically are in — for performance campaigns are 1.5% to 2%. When we run — when we use first-party data, it’s as high as 3.5%. Similarly, when you’re building brand awareness or communication campaigns typically you have a view through a rate of about 30%. When we use first-party based cohorts that jumps to as high as 45%. So data makes a lot of difference in the effectiveness of communication, as well as the cost of communication.
In our — if you will see ITC E-store we advertise and we get people on the store, we find that the return on ad spend when we use our first-party data is as high as 25% higher than when we use normal cohorts available on Facebook and other media. In-house content creation, we — gone are the days when you have an agency making all of your content, we create content on the fly so there are occasions, sometimes you have fluid occasions like a surprise wedding announcement or you have fixed occasions like Diwali or Valentine’s Day or New Year’s Eve. So both kind of occasions you create content and we today have in-house content creation engines, which have generated about 2,500 pieces of content in the last 12 months.
And 70% of this content that we create is from first-party data. Now when you do all of this, you need to have a good measurement track in place so that you know that your spends are getting optimized today. Our digital spends has seen a steady increase and we’ve seen a 3.2 times growth in digital spends over the last four years. The next part, once you have this insight, you need to re-imagine consumer experiences and start to create really differentiated consumer experiences and all of my colleagues talked about it. Hemant talked about it in the context of foods and so did Sameer it in the context of Personal Care. But this wheel is very important.
You have superior insights. Though the insights are no good unless you’re able to convert them into offers and for that you need agile and purposeful innovation. Sameer talked about those examples, right, because we were listening in on conversations that we could catch trends early we were the first to launch the surface disinfectant spray, that’s a category leader. It is a super success. And then of course because of our agile manufacturing and platform based R&D, we could quickly repurpose the fragrance lines to produce a product. We then listen to conversations and people were saying, hey, how do I, what about clothes, what about my sofa, what about my curtain?
How do I keep them sanitized? So we came up with the cloth disinfectant spray, which by the way, also is mole killer, if you want to use it on your jackets in winter, which you don’t want to wash every day. It worked perfectly as a mole killer. But that came from the insight of what do I do with make clothes. Similarly, people were touching surfaces and they wanted something to keep protect themselves, so we came up with wipes. So if you have surfaces that you don’t trust for example you are taking a public utility and you want to clean it. So we’ve got us had a set of wipes and that journey kept going on. And just to give you an idea of platform-based innovation we have in our R&D center groups, which look at agriculture, at food, nutrition, hygiene and skincare and so on.
So there are various technology platforms that are being built at all times and there is a — we have the unique benefit of being able to meld many of these platforms into one and Nimwash is our classic example. So the Agri team knows all about how remove pesticides from vegetables. The Personal Wash team knows everything about washing and we combined the two knowledge basis together to come up with the all-natural veggie wash because one of the things in COVID was what do I do with my vegetables? I can’t use a sanitizer on it. So how do I clean a vegetable which I eat without peeling for example, like a tomato or a carrot and so on and we came up with this Veggie Wash, which is an all-natural action, which not only kills COVID and bacteria, but it also removes pesticide from the vegetables.
And that’s a unique offer. It was possible only because we were A, listening and B, we had the technology platforms. If you look at the nutrition based beverages that we launched, now our agri business — I mean our R&D labs have been working on immunity platforms and a whole host of health platforms for a long time, including coming up with all natural ingredients, which are clinically proven right? So when the need came in COVID where people were talking about immunity. How do I protect myself? How do I improve the body’s immunity? We had these ingredients that we could put together and come up with formulations that actually have clinically-proven immunity improvement claims. And that’s again a great example of partnership.
We’ve also gone outside the organization and partnered with people like Amway who have their own molecules like the Nutrilite Nutraceuticals which have 21 vitamins. So if you see the Nutrilite range of beverages that we’ve done with Amway, they combine some of Amway’s proprietary Nutraceuticals with some of our proprietary natural ingredients, which boost immunity and so on, and it’s a great match that comes together. The protein shake has got our milk protein with Amway’s Nutrilite vitamins in it similarly, the other products. So it’s something that’s really working well. The next part is of — you’ve got these great offers. How do you engage with consumers? The mode of engagement with consumers is changing rapidly.
Here’s another example. During COVID we had this problem, how do we connect with consumers? Consumers themselves engaged for example, interacts with the youth and the youth were really frustrated having been cooked up in their houses. So we said, hey, why don’t we take virtual concerts and take it to the consumers in their houses, right? So we actually ran — we created this ITC Connect program where we were able to run 45 programs online. All kinds of brands have used this platform to create engagement programs with consumers so you click on a Facebook ad, you go into Zoom and you can register and participate in the program. So we’ve had great success in it.
There was, we heard that people were missing poojas in temples so we ran an online pooja campaign which saw some great traction and we then did the lokashema pooja which had 32 million views. The Mangaldeep App. We’ve had 1.15 million downloads and it’s a very, very heavily used app and even on Instagram it’s got about 92,000 followers. So many of these programs have really worked, but it’s about taking that consumer insight, acting in the moment and creating platforms of connection. The next part is smart operations. We’ve got a gamut of AI ML solutions that drive each of our applications. We’ve got multiple applications for interacting with the trade.
Vajra is used by the salesman. VISTAAR is started used by our rural salesman who will interact with stockist. Viru, the virtual salesman, again, which we launched during COVID where you get a WhatsApp message and the retailers are able to log in and connect and use it. And Unnati is an app, which allows the retailer to order any time and get fulfillment the next day. If you look at our e-commerce growth in this period, we’ve been able to — it’s now 7% of our total sales and in categories like Personal Care is as high as 14%. So this is thanks to the mobilization that we did to build brands, to communicate on any channel and the grow sales.
If you look at smart operations and I think every one of the presentations talked about this. I think today we use analytics in a big way in every single area operations. If you look at the planning pieces there is a lot of work that is being done. We are running a project Zen which is an end-to-end integrated platform. Now, as the Consumer segment splinter and as you start to offer more and more niche products, you need to have a supply chain that can actually put together the offers and deliver it seamlessly and for that we are putting together an end-to-end platform that has different fulfillment strategies for high-volume products, low-volume products, niche products and so on.
And all of those and catering to different kinds of channels, whether it’s direct-to-consumer, whether its e-commerce, modern trade, general trade, convenience, so it’s designed to take care of demand from multiple channels and for all kinds of products. Similarly, our factories today are state-of-the-art. All of them use digital technologies extensively. On the fulfillment side, we’ve got again intense use of technology and analytics solutions across the value chain. This is a view of some of our factories. We have automated systems to monitor processes, process parameters, manage utilities. We’ve got extensive use of AI for optimizing processes, coming up the Golden batches, there are IoT devices for predictive maintenance.
We also use a lot of vision analytics to ensure quality. There is a fair amount of robotics in our manufacturing process, which helps improve productivity of repetitive processes. We just put in place an automated manufacturing and logistics facility in our factory in Pudukkottai. This is a completely automated.
[Video Presentation]
So Hemant talked about the ICMLs. This is attached to the Trichy ICML and it allows us to ship out the entire range of products effortlessly. Similarly, coming to employee experiences, we’ve got a plethora of initiatives that are in place for workflow improvements, for creating the digital personals to look at enhancing the — removing automating repetitive tasks and for employee connect.
And I think all of these go in making the workplace smarter, faster and more effective. In fact, right from day one of COVID we were able to seamlessly switch to an online mode of working, which is now a hybrid model working without a single day lost because all our systems were able to transit to digital form. We also use augmented skill building and I think this example was shared by some of my colleagues. All of this digital initiatives for them to be sustained and grow you need a very robust base and that is what we’ve got with the DigiNext which is our Apex team that sets direction for digital initiatives. We’ve got the young digital innovators lab who come up with different digital business models.
We have ways of rapidly validating the model and then we take it forward. We put in place extensive plans for skilling of people. On Industry 4.0 we have a community of practice. Most of our industrial engineers are on this community and they’re constantly evaluating and adopting new technologies. We have the digital and analytics — COE is very well established in the paper business and they are running multiple projects across the organization. It’s being set up in the FMCG business and we’ve got a multitude of projects already identified in action. We’ve got the Digital Academy for building digital skills and we also work with global faculty to come to — try and refine some of these models.
To enable all this we’ve created our own D2C platform, which is the ITC E-store that allows us to connect directly with consumers. We are also partnering with start-ups both through direct and indirect investment. This gives us an opportunity to actually interact with the startups, learn from them understand business models and adopt many of these in our own systems. We’re also creating an internal environment or startup environment. So we’ve had this massive competition within the company called Reimagine Next where we had teams coming up in every business with new ideas and they have all been enabled to go out and pilot those ideas, the shortlisted ones.
We are also creating digital first brands and connected communities. So let me take you through — the ITC e-store is one example of, we started this during the pandemic, today it’s in all the metro cities as well as Pune, Ahmedabad, Nagpur, Lucknow and Indore. And it really showcases the full range of ITC products but there are three challenges when you run our direct-to-consumer channel. One is, how do you manage the cost of fulfillment? And I’m happy to report that we today have that under control and our cost of fulfillment is extremely competitive. The second challenge is how do you acquire consumers? We are constantly working on ROAS and all the first party data that I talked about actually goes towards reducing the cost of customer acquisition.
And then as we kick in with the lifetime value of consumers through robust loyalty program that costs drops even further. So we are well placed to connect with consumers and expand our e-store. If you look at the new generation of consumers, you go from products to giving the consumer control over what they buy so you will see increasingly that there are new configurable, personalizable products the classmateshop.com allows you to choose the notebook cover that you want. It’s digitally printed and couriered to you and this is becoming extremely popular. We have the Dermafique Smart Skin Advisor where this is an AI-based app, you take a selfie and of yourself and then the skin analyzer analyzes your skin and gives you a recommendation of what products would be most suitable for you.
Looks like things like pore size, sebum, hydration levels and all those parameters so the future is about not just static products but allowing the consumer to discover the best product and experience for themselves. We’ve been moving on to digital first brands. These are brands that will be entirely marketed in the digital space. We have launched — Dermafique have pivoted to a digital-first brand and we also are working with startups like Mother’s Purse who have an entirely digital model of creating brands and marketing brands. Finally, to end, I think today if you look at ITC, the strength of ITC is our ability to leverage our synergies that lie across multiple business divisions.
For example the Foods business succeeds basis the strength of our procurement, Agri procurement, the strength of our Hotels businesses to come up with the right formulations, cuisines, understanding of cuisines, matching it to taste and the Foods business’ ability to execute market and trade marketing and distribution’s ability to reach the product. And all of these are powered at every node and I don’t have the time to go through every single node. But you will find that there are — there is intense use of technology and AI models in every node to drive the business forward. And I think this will make all the difference in our performance in the market.
Thank you.
Karthik B — Head of Corporate Planning
Thank you, sir. Am I audible? Thank you, Mr. Sumant. Wonderful presentation on digital strategy. May I now invite Mr. Nazeeb Arif who is Executive Vice President and Head of Corporate Communications to walk us through the next presentation, which is on sustainability and how ITC is raising the bar with regard to ESG. Over to you Mr. Arif.
Nazeeb Arif — Executive Vice President & Head, Corporate Communications
Thank you very much Karthik and very good afternoon ladies and gentlemen. It is a privilege to share with you ITC’s sustainability journey, a subject that we are immensely passionate about. And as I do so I’m cognizant of the fact that I stand before you and between you and the question and answer session that all of you have been waiting for. So I’m going to be concising this entire journey of about 20-25 years in about 20 minutes and the journey that we believe is the core foundation of what makes ITC and its businesses future-ready. So sustainability in ITC is not a bolt on, but it is ingrained in the DNA of the organization, a DNA that is inspired by credo of nation first, Sab Saath Badhein where we all collectively work towards creating enduring value that you see in our logo for all our stakeholders.
And this is a kind of philosophy that has driven ITC over the years to get the kind of exemplary performance that Chairman had spoken to you in his presentation, carbon positive for 16 years, water positive 19, solid waste recycling positive for 14 years. And it’s very encouraging to see that despite the growing footprint of our businesses over 41% of our total energy is today from renewable sources and even more important for a country like India, 6 million livelihoods have been created by the business models that we followed. Very recently Chairman has articulated the Sustainable 2.0 vision, a vision that is going to raise the bar as we meet the new challenges of a post-pandemic world with very bold and ambitious goals for the future as well.
In this journey we have been fortunate to get several awards, whether it is for our business models of our governance or some of the work that we’ve done with millions of farmers and as Chairman pointed out in the morning, some very global recognitions for the work that has been done, whether it is the leadership positions in the MSCI ESG or the CDP the alliance for water leadership. And as the world moves to a net zero, the fact that some of our hotels have been able to become zero carbon certification as well. Now what has been behind this is a very compelling vision, a sustainability vision, which was shaped by some of the core challenges that we saw over the years.
And one of the core challenges that you see today, which has got aggravated is the big elephant in the room where the world has pressed the code red button on climate is the emergency at this moment and it is an issue that while everyone met in Glasgow recently at the COP26, what has come out is the stark reality. The fact that despite all the floods that we have done, we are still on track with the 2.7% degree kind of an increase from pre-industrial levels when we should be at 1.5% which is a critical level to sustain life systems in the planet as well. And with all the best case scenario what we see today is we are moving towards a 1.8 degrees, which is still higher than where we should be.
And the point with this is the stark reality that the pace is increasing so much that this climate change is coming home to us, it is here and now. Last 7 years we’ve seen with the warmest on record global sea levels have been increasing with many, many affected across the world as well. This has got aggravated by what we see in India as well. If urgent action is not taken we know that climate effects could lead to 75 times increase in frequency of extreme weather events, there could be a 50% reduction in wheat yields. And while there would be an impact on GDP as well we have the twin situation of almost 21 cities it is expected to run out of ground water by 2030 and at the same time, but have turn of the century more than 12 cities, including some of the most important ones in the country being submerged as well.
Everybody, all of this is the global challenges of inequality and livelihoods. And this entire boundaries have been pushed even wider because of the pandemic right now with a lot of livelihood challenges. A recent report that has come out the World Inequality Report has reconfirmed once again that the part of the global population today poses just 2% of total wealth. Now this is a recipe for social disaster. The social inequalities that happen as a result of this makes societies unstable and obviously is not conducive for business. The other part of the challenge is that as the world moves into a 10 billion population by 2050 we see National Geographic talking about that in the next 40 years, we will have to create more food that we have done in the last 8,000 years.
So there is tremendous pressure with less depleting natural resources to be able to give food security to the millions that will inhabit the planet in the years ahead. In India this situation mirrors these global challenges. We have almost one-third of the global population resident in India and of the poor resident in India and we have about 12 million of the workforce — youth who join the workforce every year putting pressure on the livelihoods that we need to create year-on-year. Looking at these challenges many years ago ITC redefined its vision with a paradigm of what we call responsible competitiveness.
Competitive, we are extremely competitive in all our businesses but in a way that we protect and nourish the environment and also generate livelihoods. And this was a model which is this vision, which inspired, which spurred us to create unique business model which would synergistically deliver all these three things together, economic capital, environment capital as well as social capital. And in doing so we created a whole framework, which we went did a deep dive on what would be materiality issues, what are the risks and opportunities. We did stakeholder engagements to be able to come up with a sustainability journey that would be meaningful for all the stakeholders.
So let me give you some examples of this in action. As I said, the elephant in the room is climate change. So we adjust this through six broad pillars, and I’m going to take you to some of them nature based solutions, adaptation, inclusive value chains, green infrastructure, decarbonization and circularity. The first one on nature based solutions I’d like to give you a case study of our paper boards business. Today as you are aware, it is the leader in this industry. However, 20 years ago around that time it was heavily challenged for many reasons, one was for the lack of fiber, wood pulp in the country as well and of course cheaper imports of finished products.
At that point of time, we had the option of an easier option of looking at imports of pulp at a lower duty, but we decided to take less travel path of actually going into large scale forestation, which has held us in good stead today. We did research to grow 125 types of clonal saplings, which could grow in wastelands and India as you know, has large tracts of wastelands which are owned by small farmers and tribals as well. So we took these saplings which were as a result of many years of research and gave it to their tribals to grow in the wastelands. And you see at the top — the first round of harvesting which takes place we had to use one of four standing trees and every year you have this cropping activity, which leads to livelihoods and also green cover.
Today this activity, after many years of afforestation that we have been following for years have led to large scale forest and you can see this video where you can see some of the clusters of the forest that we’ve been able to build over time. It is said that and greenhouse gas emissions have been able to be where it is today also because of some of the contribution with these large scale forests have done. We have been able to supply more than 1.5 billion saplings that is more than actually all these citizens of this country as well. And that gives us immense pride and it is an area that continues to grow for ITC as well, lending strength to our business.
As a result of this, we’ve been able to green over time 900,000 acres. This is not only made our business is competitive and one of the reasons why today it’s a leader in that industry, but also supported 165 million person days of implement of livelihood of employment and as well as creating a large environmental impact the reason why we are now carbon positive for more than 16 years. So this triple bottom line performance is again one of the examples of the vision that we had put in place over the last couple of years. Going forward we’ve also looked at Agro Forestry because not only having the trees but inter cropping with other crops as well so the farmers can raise what comes from there.
Moving onto another area and nature based solutions, biodiversity as you know is very important for sustaining lives in this world. And we have done a huge amount of work in this area as well. Already about 81,000 acres, which we’ve been able to conserve. Our sustainably 2.0 vision that Chairman has put before us looks at 500,000 acres by 2030. Already looking at the kind of benefits that we’ve been able to do from a baseline improving green cover by 100%, tree species by 150%. We are very confident that in all the PPPs that we’ve been able to do with various state government. This is another area where we’d be able to make some meaningful contribution as well.
Moving onto adaptation and resilience and there are two areas that I would like to focus upon. One is internal and as you know because of the extensive operations of ITC whether it is in factories warehouses our hotels the footprint is pretty large and some of them could pose their vulnerabilities because of climate risk as well. So we’ve done long term studies long-term risk that is with climate experts looking at climate and risk vulnerability and we have identified issues. Looking at several variables, whether it is temperature, whether it is precipitation, whether it is sea level increase and for each one of them we have developed scenarios by which we can adapt to these issues and also become more resilient.
So these are issues which we have done internally and also we’ve got of course, in the short-term business continuity plans which will help us deal with any extreme weather events that happens from time to time and with increasing frequency. But in the external stakeholders, the second point that I was going to impress upon in adaptability water as you know and we are a company deeply engaged in agriculture; India today 54% of the country is water-stressed. So looking at this critical area, we’ve been working on it for several years in water stewardship looking at both the supply and demand side. So we used to go to our areas, and you can see in our fields where a number of areas that to we go into where farmers used to tell us that the last time we saw crops was during our grandfathers time.
And that was one of the reason was, of course, water and when India looks at a 1.5 billion livelihoods looking at 1.5 billion people food security is going to be very, very critical. So we looked at participatory watershed planning where we involve water user groups, villages from the community to identify occupiers and the watershed projects in those areas. And this has led to a large number of rigs almost about 23,000 water structures, which today brings soil and moisture conservation to about 1.2 million acres and these kind of structures that you see run for almost 5 kilometers long. Many years back when I used to say this people would not believe it.
So I will show you a drone shot of this. This is not a river. It is a man-made watershed project along a natural course of a river which had dried up. Now what you can see is miles and miles of water. This is collected when there is rain and what this leads to is that for an area, which was otherwise barren, 300 villages get water. There is productivity. There is agriculture. Income rise up and in this kind of a project and many of them, you will see huge transformation that is taking place across villages leading to rise in incomes and of course prosperity for some of the bottom of the pyramid as well. As we were doing supply side, we also saw the opportunity for demand side. How do you use water more efficiently?
And some of the projects that we did over the last two years have been extremely encouraging. We looked at about 7 crops in those areas. More proper drop, as they say. And the water savings that we’ve been able to do in about a year is almost equal to the harvesting that we have done from the supply side for 20 years. This shows the kind of potential, this has been a pilot at scale at 300,000 odd acres and this shows the potential of water use efficiency and what can be done in those areas. Coming to farmers, our deep engagement with farmers for many number of years where e-choupal was the linchpin of the entire work that we do at rural communities. We work on a two horizon approach.
The first horizon is securing and enhancing the wealth generating capabilities for today. Strengthening those and making it more sustainable. And horizon two, really looking at building capabilities for the future in terms of wealth-building capacity for the future as well. So the first accept looking at the entire experience of e-choupal over many, many years, we’ve been able to do several programs. I’m going to call out three of them. One Baareh Mahine Hariyali, which we did a pilot at scale with about 200,000 farmers looking at how we could have agriculture all throughout 12 months of the year. Baareh Mahine Hariyali which looked at the plethora of interventions whether it is varieties, whether it is various other issues of farm mechanization and zero tillage has led to doubling income for 35,000 farmers and for the rest, balance of farmers who did not adopt all the practices got adopted.
Many of them we also the farmers’ income rising by about 30% to 75%. The other aspect of these knowledge bringing into — we brought it to NITI Aayog programs for 27 aspiration districts where we train 2.5 million even during the pandemic where we could not go on site. We had to create 6,000 WhatsApp groups using digital technologies that even so Sumant talked about a little while earlier to be able to train those farmers, which again resulted in a 60% increase in yields in those areas as well. The third area is climate smart agriculture to build resilience of farmers. As you know, agriculture is one of the most vulnerable to climate change. This pilot again that we did at scale with 250,000 farmers led to encouraging results.
47% reduction in GHG emissions. At the same time enhancing returns of farmers by 41% to 87%. Looking at this again Sustainability 2.0 Vision that we are doing we plan to extend climate smart villages to about 3 million acres by 2030 and therefore providing far more security, far more livelihood security to farming community as well. And this security of livelihood, livelihood as they do has also been accentuated by the inclusive value chains that our brands have been to anchor for many years, the wheat value chain, the potato value chain, the milk value chain, spices, the paperboard agarbatti and so on and so forth.
So these are also by driving competitiveness across the whole value chain, looking at the kind of the brands as they are growing. We are also supporting millions of livelihoods across the value chain, and it’s going to be an important part of what we do in the future as well. Horizon 2 as we talk about doing things for the future we have worked on education. We have worked on various other areas and we’ve seen transformational change. I would take probably ours to tell you about the kind of things that we’re seeing. They’re so inspiring on the ground to be able to see that kind of change in front of you. Increase in the kind of education, reading expertise and the numeracy skills.
If you look at training, 100,000 youths trained, make them more employable. They being able to get jobs across — even if they are from the villages they’ve been able to find jobs across even in other cities as well. Women empowerment, inspiring all throughout, I mean, where we work with ultra-poor women. Women who are — these are women-headed household and there we have seen their income increasing by 8 times, asset value increasing by 3 times and these are things on the ground when you go to — I still remember a lady where we did agarbatti rolling a long time back, lost her husband that time, five children.
As we were talking to them she lost her elder daughter to poverty. Two years later of agarbatti rolling and we saw her building a two-story house and today I understand that one of her children, one of our sons is going into engineering. That is the kind of transformational change that you can see in the ground by anchoring some of those value chains that we have all across. Livestock is again another area which is after farming activity. One of the largest again, we’ve seen huge — in the growth here where farmers have been able to generate more income through additional sources of income because farming is also can be very vulnerable to climate change. So these are all how you’re providing security for the future as well.
Sanitation was a big issue. The country launched Swatchh Bharat Abhiyan. We also created huge amounts of sanitary units across the country especially in rural areas and we are very happy that today 96% of all these toilets are used and not only used but used by all the members of the households, which was not a situation before that. So a huge scale and impact of whatever we’ve been able to do on the ground, because of the scalable and impactful models that we did. And in this, we have been able to do so amplify this with the help of partnerships. 83 partnership with state governments, with various other bodies as well and also knowledge from some of the best in the world and best in India and execution from best in class NGOs which has allowed us to bring to the table diverse skills to be able to amplify what we are doing.
Another area in climate change when you talk about green infrastructure we have invested over many years in green buildings. Today, we have about 33 platinum rated buildings not only some of the most iconic hotel properties that you can see but across our factories, across commercial boundaries, across residential complexes where we have been able to create iconic green buildings which India can be proud of. And today, taking the renewable energy side today, we have invested quite heavily, what you’re seeing on the screen is again a very recent solar farm that we have done in Tamil Nadu about 15 megawatts which is going to power, which is going to shift our grid electricity to renewable energy in manufacturing, in packaging, in hotels and so on so forth.
So these are all heavily invested in renewable energy, which will hold us in good stead in the years ahead. In fact, the renewable energy load today is already running electricity in many of our hotels, which is again one of the first in industry in that sense. So in decarbonization whatever we are doing inside our units to make it more efficient in terms of energy and water, reducing distance to market from the ICMLs that my colleagues spoke about but Sustainability 2.0 will also raise the bar here where we are seeing that from the current 41% will go to 50% in terms of renewable energy by 2030. We are going to make 100% of all green electricity from renewable sources.
We will reduce our GHG emissions by 50% and also reduce our specific energy by 30%. These are stretch goals Sustainability 2.0, but we’re very confident that with the experience that we have, we will be able to reach there. So one of the last pillars of climate change that we should talk about, it is again a very large area of concern. Today, if the way if you go forward with the current level of waste it is said that we will need 6 Chandigarhs to create a landfill. And so therefore for many years, we’ve been working on what is on two fronts, one is of course the well-being out of waste program where across communities. Today 15 million citizens we helped in raising awareness, doing segregation at homes, tying up with municipal bodies to be able to deliver those kind of products to recyclers.
And also the M2M value chain right up to recycling, a very important project there multi-layered thought to be difficult to recycle with LSTC we’ve been able to do a pilot plant in Pune which is now also converting some of these [Indecipherable] to granules for products of plastics of daily use. The other part is the community waste management programs that we do and there also we have been able to reduce the waste that goes to landfill from 80% to about 20%. And again along with that is the green temple program, which has gone to about 226 temples. A lot of flowers are given by devotees is in these areas. Some of them have been converted into biogas and other compostable kind of products that we can do there.
And the other part is also the way we’ve been able to generate rural livelihoods by looking at some of those temples and using the fragrance of those temples, rolling them into agarbattis with rural women to be able to also tie-up with those kind of temple trust and contribute to society there as well through our agarbatt value chain. Chairman has spoken about this. Our paperboards are looking at the next trajectory of growth. So sustainable packaging already several brands are out in the market to replace single use plastics and I’m certain that in the years ahead we’re going to see this as a new vector of growth as well.
Now running all of this, all these sustainability build is a very robust governance framework, which starts from our board oversight with Board Committee on CSR and Sustainability, which reviews the performance annually and this is also then reviewed by the Corporate Management Committee, the strategic management function of ITC which reviews it every month. And there is a sustainability compliance review committee, which supports those activities by monitoring and reviewing, inspiring those activities and at every business level also there are business level sustainability committees really making a comprehensive network to be able to deliver the journey that we grow that we wish to.
All these are driven by a very extensive policies written out board approved policies, which addresses those ITCs materially issues and these are monitored by very well defined KPIs, which allow us to look at where we are going and how we should do this all this that I spoke to you about is disclosed in our very transparent reporting that we do. ITC sustainability report has been there for the last 18 years even before sustainability reporting was involved. We’ve been doing this for many years. The ITC integrated report and of course various other reporting that we do across platforms and these are again benchmark to global kind of standard in terms of TCFD and others.
So finally, ladies and gentlemen, a summary of all the Sustainability 2.0 goals, which we believe are going to raise the bar, not only for us, but enable us to contribute more effectively to the future. The whole range of issues in leading climate change, in looking at livelihoods and all through a very robust governance network meeting all the parameters of ESG in the best possible manner. So therefore as Chairman said a company with a passion for profitable growth. But in a way that it is sustainable inclusive of our strategy that we believe will lend us immense strength as we meet the challenges of the future. And in this journey we will always look forward to your continued to support, goodwill and advice.
Thank you very much, ladies and gentlemen.
Karthik B — Head of Corporate Planning
Thank you, Mr. Arif for that wonderful presentation on sustainability. We’ve now finished all the business presentations and we’ll be going into the Q&A session pretty much soon. There have been requests from some quarters to keep the chat box open for some more time so please take another five minutes or maybe another 10 minutes to list down your questions. And we will come back very shortly in about 10 to 15 minutes where the Chairman and Managing Director Mr. Puri will be joined by Mr. Rajiv Tandon, Executive Director; and Mr. Supratim Dutta, Chief Financial Officer. So in about 15 minutes back, we will come back. Thank you.
[Video Presentation]
So welcome back everyone. Thank you all for being with us right through the day. I do hope the presentations gave you a very good drink side view of ITC and what lies ahead. We have received over 100 questions. Our team has been busy bucketing these questions received throughout the day. At the outset, let me thank the gathering here for such involved participation. Let me first take a few business related questions before we take overall questions related to ITC.
Questions and Answers:
Karthik B — Head of Corporate Planning
The first question is — the first set of questions is on the cigarettes business. An expert panel has been constituted by the Health Ministry to recommend a taxation structure for tobacco products. What’s the company’s perspective on this and how should investors think about growth prospects? Has there been a dialog with the government on reasonable taxation policy? This question has come from several analysts including Edelweiss, JM Financial, Jefferies, Investec, Centrum Broking, Spark Capital and YSIL.
Sanjiv Puri — Chairman and Managing Director
Okay, thank you Karthik. So you know, this dimension of the Health Ministry making recommendations on taxation is a regular event. It is not that this is the first time it has ever happened. We understand that this is an aspect that is on which recommendations are made on a regular basis, I would say an annual basis. Second, this time the focus is not barely on cigarettes which has received the brunt of taxation, it is for all tobacco products. It is a much wider area that it’s being looked at. The figures off 75%, etc, that are being quoted in some media by as a recommendation of WHO.
This is a continuing kind of position. It’s not something unique or just suddenly happened. And in the process of looking at taxation, Finance Ministry does receive recommendations from various stakeholders on many, many facets and including this particular category, including the fact that the Tobacco Institute of India also makes its presentation. So all the inputs are given, and it’s for the — and the ministry takes the final view on what is to be done. And as we have shared some data in our presentation is that during periods where taxation went up at a steep rate of 15%, revenue collections grew only under 5% and in periods where there was stability the legal industry was able to clawback and revenues grew at 10%.
We’ve also spoken about the extent of seizures that are happening of illicit products, in fact there is hardly any day media does not cover it. I think there has been also a Parliament question where the data was shared on the extent of seizures that shows how cognizant the enforcement and policy makers are of this menace that has come in and the impact it has not only on the revenues but also on farmers, which are a large stakeholder in the economy. So one would hope and expect that all these data points will be considered when an appropriate decision be taken looking at all the facets. And given this data points and information available, I think we should expect these to be taken on board for a reasonable view on that perspective.
And if you may also just to mention take note that whilst taxation has been a serious concern, it’s been a bigger concern in the period between 2011 to about 2015, ’16. And then also during the GST transition, which as per the reports that are available was intended to be revenue neutral transition. First, it turned out to be a transition where there was a lower rate of taxation and then in the second change when the attempt was to make it revenue neutral it actually became higher. So that was not an intended as per these statements that are available.
And then after that we’ve had in February ’20. So it’s been a little more, I would say the recent experience has been that it’s a little more phased out and I hope that this is on account of the awareness of the challenge and issues that surround around this industry. There have been other factors that have impacted this industry during this period, which is more to do with the disruptions on account of the pandemic. So given the circumstances and the data available, the information available, I hope all that is taken into account and a more reasonable perspective emerges out of all the deliberations and decision-making.
Karthik B — Head of Corporate Planning
I move on to the next question. There are two questions. I will probably cover after another. One relates to illicit cigarettes which you briefly touched upon. The second question first is, do you see GST compensation being extended beyond 2022? What would be the likely taxation structure for cigarettes after the cess is discontinued?
Sanjiv Puri — Chairman and Managing Director
Okay. So as far as the compensation cess is concerned it is meant to be till the middle of 2022. Anything beyond that does require a Constitutional Amendment. What we understand is that, I’m sorry, let me correct myself, it is as supposed to be there till 2022 to compensate states. And any requirement to compensate states beyond ’22 requires a Constitutional Amendment. However there can be a modification to the Act to extend the levy of the compensation tax to pay for the or to take care of the interest and loans that have been taken on account of the revenue shortfalls that have happened during the pandemic period.
So to deal with that, I believe the levy will stay for some more years and there is no information available to suggest that there’ll be any further attempt to compensate losses or compensate states beyond 2022. In fact, the issue of lower revenues is being addressed by looking at the overall rate structures and the rates across categories where there is a group that is working and looking at that area.
Karthik B — Head of Corporate Planning
Thank you, sir. The next question relates to illegal cigarettes, on illicit cigarettes. These have grown sharply in the last decade which was also covered in the presentation that the businesses made earlier. How are the trends now? Also can you please give any specific color on the company’s engagement with policymakers on this issue?
Sanjiv Puri — Chairman and Managing Director
During the recent past, which is really the period from March ’20 to now, I think the period has been marked with disruptions to the economy and disruptions particularly to items like cigarettes and they are well on as my colleague Sandeep shared, recovery has been quite robust this year as compared to the prior year. So that’s been, I would say the dominant issue in the last couple of years. Prior to that I did share data that in periods and that was a period when we experienced some stability that revenues actually grew by about 10% and that is largely volume-led because there was not much of because of taxes did not go up it did not change prices materially so largely volume-led growth during that period.
So that’s the correlation. That’s a correlation. This is a very recent data and the reason I also explained earlier was that cigarettes is just 8% of the tobacco consumption and there is some interplay between illicit and legal cigarettes and also other forms of consumption. So in periods of stability we do find that legal cigarette industry is able to clawback particularly from illicit and that’s what we experienced in the past. So with stability we do expect the volumes to firm up and with the economy also stabilizing the high frequency indicators doing well, well above some of the indices are well above the pre-COVID levels I think this augurs well for the economy as a whole and for this category also in particular.
Karthik B — Head of Corporate Planning
The next question relates to structural decline. Basically the question says, we gather that’s cigarette volumes are back to pre-COVID levels now, but do you think there could have been structural decline during the pandemic whether due to work from home or from other reasons? If so, to what extent? And how do you see growth in volumes going forward? Has there been any mix impact? How should the investors think about conversion from other tobacco forms to cigarettes?
Sanjiv Puri — Chairman and Managing Director
Okay. First of all we have no data to suggest that any — there is any structural change. Rather I would say the robust recovery that we are seeing thus seems to suggest that it is kind of normalizing. It is really normal to what it was prior to COVID. Yes, during the disruption there is some impact because there is some correlation between mobility, correlation between going out to and because this is also a category that is perhaps the most often transacted category because it’s not something that you stock up for a week or a month or something, it’s a daily stock up, sometimes even more than once during the day. So mobility effect tends to impact — tends to kind of create some disruptions or create some lower velocity of sales during some period of time. But structurally, there is no evidence with us to suggest that in fact we are only seeing that it’s getting back to where we were. And as far as interplay with other categories is concerned, volumes going forward, I think I’ve largely covered the whole philosophy in my earlier answer.
Karthik B — Head of Corporate Planning
Okay. Thank you, sir. The next question relates to we did not see any price increases after the last increase in Feb. So March ’20 after the taxation change, how should investors think about pricing as a lever? Will pricing lever be used only when taxes increase? What is the company’s — what is the view of the management on this?
Sanjiv Puri — Chairman and Managing Director
Okay. So I think in the — going back to your earlier question, I think there was an element on the mix which I may not have addressed, but as part of this question, I will address it. As we explained during the day I think the imperatives for us is one to maximize the potential of e-cigarette category within the basket of tobacco connection. And number two is to fortify market spending, and also to counter illegal. These are the kind of objectives and priorities we work with. And to enhance the value capture and to deal with these objectives there are levers of innovation, brand portfolio, accessibility, execution at the last mind, these are the levers that we use.
And more specifically as far as value capture is concerned, the levers are pricing, mix, volumes, these are essentially the levers. And we deploy a combination of these levers, a combination of these levers. Now, when there is tax stability we do find that the industry is able to clawback, clawback from illicit industry, able to clawback from other forms of tobacco consumption. So I believe during that periods of time, of course, this is not a cookie cutter answer, it has to be contextual at that point of time, but at a broader principle, mix and volume are better weapons at that point of time. When there is tax increase, you need to pass the tax increase on to the B2B.
I mean you have to pass it on into the price so that’s where the pricing lever becomes more important. And then you work on pricing, you work on mix, volume becomes a weaker lever at that point of time. So you have to play with this levers and I might also add that during this period what we’re finding is that there was a question on mix, I think the mix is getting richer. It is getting richer of course stability is helping. In addition to that, I think the sharper execution of innovation and there have been some very interesting innovations in the recent past that are helping this. So I mean the premiumization is certainly mix is getting richer backed by innovation and backed by a better accessibility to this innovation. So the last mile execution of the assortment also has significantly moved up that is helping us to improve the mix.
Karthik B — Head of Corporate Planning
Thank you, sir. The next question is on electronic nicotine delivery systems. Is the ban on e-cigarettes, e-vaping and heat not burn products, etc, likely to be lifted? How does the company view this segment and how would it respond if and when the ban is lifted?
Sanjiv Puri — Chairman and Managing Director
See, it’s difficult to do kind of crystal ball gazing on what is going to happen. However, let me make the following points. Number one, recently as part of the COP meeting or an outcome of the COP meeting I think the position that WHO has taken is that there is — evidence is not adequate on its harm reduction and there are certain risks associated with the other categories as well. Number two, India is not the only country to have banned it. There are many countries that have banned it. Number 3, in India when the ban was done one of the concerns was that this could act as a gateway product and such similar data had come out from other parts of the world as well. Having said that, and we do recognize that it is impossible for us to predict what would happen in the future.
It’s always possible that a change could happen and it is also possible that the change could be the other way round globally. So we do not know, as an organization you have to be prepared to be able to play in whatever is legally allowed. We were into this category before the ban came in and we were also had developed some advanced systems before the ban did come in. And our endeavor is to be in touch continuously, be engaged in this, I mean, be aware of what is happening and also build our capabilities, so that if and when or if an ever this is ever opened up we should also be able to — we should also be equipped to play in this category.
Karthik B — Head of Corporate Planning
With your permission I will now move to the FMCG segment. The first question is on the immense cost pressures in the FMCG industry. What is the company doing to mitigate the impact on margins?
Sanjiv Puri — Chairman and Managing Director
So, Supratim, would you like to take this?
Supratim Dutta — Chief Financial Officer
So, yes, I think it has been touched upon in the previous presentations that we are seeing unprecedented inflation in commodity prices whether it’s edible oils, whether it’s craft paper, whether it’s palm oil and [Indecipherable]. I think all of the large commodities have seen huge inflation but I think the good news is that we have been able to mitigate the impact of cost inflation very effectively so far. It’s been a challenge all right but I think we’ve done a pretty healthy job of retaining our margins or sustaining them at about 9% EBITDA for the FMCG segment for the first half.
This has been possible because we’ve kind of looked at every element of the P&L whether it’s promotions, trade promotions, whether it is get it getting to the market in a more sharper way and looking at more effective ways to communicate and therefore get the best bang for the buck in the circumstances whether it is leveraging some of the structural interventions that we’ve put through in the previous years, whether it’s shortening distance to market, whether it’s really acting very agile — in a very agile manner in the marketplace.
These have all helped us to kind of mitigate the challenges. Of course, we’ve been also — we’ve also been active on the pricing side. But we’ve been judicious there in the scheme of things, because we don’t want to also destroy demand and where we have market-leading positions we’ve also actually initiated some of the pricing changes. So like I said, I think it’s been a holistic way to look at it and the good news is that we’ve been able to kind of maintain margins at 9%. Of course, the challenge is not over. I think the year is still six months down the line. We have to see how we end the year. But this has to be seen more as an aberration. It’s not something that is hitting ITC only. It is true for all industry players. And I think you’ve seen that in all the numbers.
So our endeavor is going to be leveraging all possible fronts to mitigate the challenge. Like I said, all these measures are still being put through. We’ve taken some more price corrections. And I think we will be able to do the best going forward as well. Chairman’s presentation in the morning also talked about extreme cost focus. So some of them are obviously structural. They’re there with us. And then there are some that we’ve done tactically to deal with the problem. So I think as a combination of all these factors we should be able to kind of mitigate the challenges that we have in front of us.
Karthik B — Head of Corporate Planning
Thank you, sir. Moving on to the next question there are some categories in FMCG businesses which are — which is still low on scale even after three to five years in your portfolio. How do you evaluate your portfolio choices and when would you take a call on retaining or discarding these categories? A supplementary question. Why are we into so many categories? How are we thinking about scaling up newer categories? This question has come from several analysts including IIFL Securities [Indecipherable] Carnelian Asset Advisors, Investec and so on.
Sanjiv Puri — Chairman and Managing Director
So as I said in the morning the aspiration was, is to build an FMCG business of scale and to do it quite rapidly. That is the aspiration with which we started. And to do so we said we will leverage institutional strengths. Now in this context, I explained in the morning our portfolio perspective. Number one, we were saying we have certain power brands in our portfolio like Aashirvaad, Sunfeast, Bingo, YiPPee, Classmates, Savlon and so on and so forth. So we will scale and fortify these brands. We will invest behind these brands, much sharper innovation in these brands. Second, we are going to use the strength of these brands to address adjacencies.
For example, Aashirvaad, which is a strong center of plate brand is straddling certain additional areas, which are more value-added adjacencies be it vermicelli, be it organic pulses and atta beat, gluten-free atta beat, sugar release control atta, be it salt and spices or for that matter ready to eat meals, etc. So it is straddling certain adjacencies and similarly Savlon has also straddling some more vectors of innovation as my colleague Sameer also explained in the morning. So there are the power brands which are being scaled up. Number two, we are using the power brands to get into adjacencies. These adjacencies are not necessarily pan-India.
It could be with regional focus also depending on where we sight the market opportunity. And the third piece is about building categories of the future. Within the categories of futures there are stuff like a [Indecipherable] like ITC Master Chefs or Be Natural which we are building at a pan-India scale. There are other pieces like maybe been Sunbean coffee. We are testing these. We are piloting these in certain beachheads or dairy for that matter, we are piloting them, testing them in certain beachheads establishing the right to win, establishing the business model that will give us, that will be value accretive when we were to scale up.
So once we have fine tuned this model, we have done the experiment, we are through with designing our business model and we are ready to roll out at that point, we’ll take a call when to rollout and went to scale it up because we have also said that at our point of time, we want to do only a scaling up of certain number of categories. We don’t want to scale up everything at the same time, but we will keep on experimenting, we’ll keep on learning. We will develop capacity.
We will understand category nuances for newer areas, build expertise and because we do it in certain focused geographies and not everywhere, there is a focused attention on it and there are separate teams that deal with it, to ensure that the focus from other categories is not taken away. That’s the philosophy we have because we do want to build a much larger FMCG business so that it becomes a substantive economic engine commensurate to the size and scale of what ITC is today. So that’s the reason we are building many categories together and we have certain institutional capabilities that will help us build it. So that’s the way we look at it.
Karthik B — Head of Corporate Planning
Thank you, sir. I’ll go on to the next question. Several analysts have asked about ITC’s FMCG businesses margins. While they are improving, they are still well below other FMCG players in the industry. What could be the reasons and how should investors think about the trajectory over the next three to five years? By when do we think EBITDA will reach higher levels, early teens, mid teens, any guidance that the management can give? This question has come from several analysts including analysts from Credit Suisse, Investec, Carnelian and JST Investments.
Sanjiv Puri — Chairman and Managing Director
Supratim, would you like to take this.
Supratim Dutta — Chief Financial Officer
Partly, the Chairman has already explained the reasons why the margins are slightly lower than the FMCG peers had. We’ve been obviously building this FMCG engine for growth for ITC. We are relatively new starters. We have a clutch brands some are mature, some are emerging and some are nascent. So I think when you look at it together, you see a 9% EBITDA margin. So some of the more mature brands and I think Hemant’s presentation showcase some of the power brands that we have in foods there of a much better kind of a margin profile in the double digits.
And I think the kind of movement that we’ve had in the last three or four years have been really appreciable. We made solid progress on the bottom line from a margin perspective. And like I mentioned before, we have a set of structural interventions that are coming to life, as we are getting more scale. We are able to deploy some of those in the marketplace more effectively and that’s why you’re seeing that the margins are actually still kind of getting sustained despite such inflationary pressures. So we cannot give guidance as to where the margins are going to be headed. But we can only say that we are confident of maintaining the trajectory.
Of course, this year has been a bit of a challenge, like we mentioned in the morning as well. But I think the structural drivers of margin expansion are very much in place and as the brands in scale, we should see the trajectory kind of getting sustained and getting better. So that’s one. So I think overall to say when exactly is going to be 13%, 14%, 15%, we don’t give that kind of a guidance. But you will have to take hard from the kind of movement that we’ve delivered in recent past and that should give you some kind of an indication.
Our aspiration or our commitment, like the Chairman mentioned in the morning, was to grow the top line in the top quartile of industry. So really peck [Phonetic] that kind of level, and with sustained margin expansion, we should see our absolute EBITDA also growing substantially in the next two to three years.
Karthik B — Head of Corporate Planning
Thank you, sir. We’ll move on to the next question. Certain categories like biscuits and hygiene products were helped last year because of increased at-home consumption and pandemic-related tailwinds. How does the Company think about increase in market share and then growth in these categories?
Sanjiv Puri — Chairman and Managing Director
That’s a good question and I would say that it’s not just mainly about biscuits and hygiene products, even other categories like noodles, categories like ready-to-cook, ready-to-eat, some of them experienced heightened consumption or surge in demand. So, certainly, more people got exposed to the categories and more people got exposed to our brands. So this does help in two ways: it does — it can lead to a heightened awareness around the benefits of certain categories and that can sustain; and second, it leads to a larger number of consumers having experienced and tried our products. So, for example, while the spike that we saw in the hygiene products has moderated, but it still settled at a much higher level than what it was pre-COVID. So category as a whole has expanded and that offers opportunity. And our endeavor, and in many categories we have seen our endeavor is to grow ahead of the category growth rates. So our market standing improves and that’s the focus with which innovation and new products and distribution is scaled up.
Karthik B — Head of Corporate Planning
Thank you, sir. Moving on to the next question, how is ITC gearing up against possible disruption to its key institutional strength of distribution with the possibility of digital disruption by certain e-B2B players? There is a genuine concern as to what would happen to traditional distributors. What is the Company’s perspective on this?
Sanjiv Puri — Chairman and Managing Director
See, we have to be available in all channels from which consumers buy or trade buys. So therefore, we are available, and we will be available in all the channels. Now, each channel has its own uniqueness, each channel has its own nuances. So we have — one has to understand that and create a service back that is relevant to that particular channel in terms of servicing, in terms of assortments and so on and so forth. To remain — and all these interventions has to be taken to ensure that we sustain a better position in these channels.
As far as general trade is concerned, and this is the backbone of distribution today. It’s a very large segment and it’s serviced largely by Company distributors. So this channel is here to stay. It is dominant. It will continue to be dominant. And our partners — as our partners, we work with all of them and helping them enhance their capacities in training their field force, in helping them organize themselves better through better ways of managing inventory. For example, we have a lean inventory model with all the large distributors. We’re also helping them digitize with various apps and systems that we have developed over a period of time. And we will continue to work with them to help them build capabilities and help them strengthen their value proposition to the retailers. We’ve also got on the app, we have also got solutions for retailers to be able to get access to credit on the same app that the order. So, our multi — variety of actions are being taken to strengthen the value proposition of the general trade. They are the backbone. They are longstanding partners and we’ll continue to work with them in mutual interest help them build their business while we have clear and — clear strategies and a clear position and we will play in all the other channels also.
Karthik B — Head of Corporate Planning
Thank you, sir. The next question is from Edelweiss and — analyst from Edelweiss and HSBC Securities. This relates to e-com salience which has grown in the last two years. How is the Company positioned in this fast-growing channel? And what are your plans to win in this channel? As D2C is a digital focus, what could it look like in the next five years?
Sanjiv Puri — Chairman and Managing Director
Yes, we have grown quite well in e-commerce and we are going to continue to invest behind e-commerce. At an aggregate level, we are at 70%. In some businesses like personal care, it’s already in double digits. We have dedicated teams to deal with e-commerce. We are equipping our e-commerce teams as also a larger community within ITC on cutting edge skills to win in the e-commerce channels. We have brought in the global best to provide training to our employees. And as I said earlier, each channel has its own nuances and own unique strategies and interventions to win in this channel around assortments, around the way you market and communicate in the channel, around the manner in which you service these channels and all these elements are taken on to Board and we have a joint business plan developed along with these channel partners to ensure that we stay ahead of the curve. So we will invest ahead of the curve in this channel, for sure.
As far as digital-first and D2C is concerned, I think I would say we have made some progress and during the pandemic, actually, the progress has got accelerated because digital adoption happened at a very rapid pace during the pandemic. So, some of our brands have actually pivoted to become digital-first brands. We’ve also launched our D2C platform, which is the ITC e-store. We’ve made some investment in another company. And outside of FMCG, in agri business, we are also building a platform, which is called the ITC MAARS. So this will be an area that will certainly see increased investment and I think a greater proportion, certainly, of our sales should come with these digitally-enabled channels over a period of time. I’m not going to forecast any number because this also depends on how this channel evolves and at what rate digital adoption takes place. In this space, I think what is important is to have the capability, have the commitment to invest and be agile and take stock frequently and recalibrate investment because it’s a space that is fast evolving and that’s the approach that we will take it. And our endeavor is that, we must win in this channel, our shares in this channel must be ahead of what we are experiencing in other channels.
Karthik B — Head of Corporate Planning
Thank you, sir. The next question relates to the staples part of the portfolio. Aashirvaad portfolio has scaled up very well. Could you please talk about its margin journey? Also, what are you thinking about in terms of foray into other staples such as pulses, rice, soya, oats, etc., given the success with atta?
Sanjiv Puri — Chairman and Managing Director
Okay. The first part of the question, we will take it later and maybe Supratim can speak about it, really for — maybe some perspective on margins of some of our bigger categories, not really foods. We also have Classmates and we have Mangaldeep and things like that.
As far as the other areas that Aashirvaad will get into, it’s a strong center of plate brand. It’s a very powerful brand, has a very high spontan [Phonetic] term. But we are going to use Aashirvaad to get into only into value-added adjacencies. So adjacencies that are value-accretive is what we will get into, and this is — examples of this have been shared during the day Vermicelli, Hemant talked about Poha, then there is a range of other ready-to-eat stuff, there is value-added atta. In fact, there is ready-to-eat chapatis also, which is being piloted in Kerala because that market is evolving in that direction. So we want to stay ahead of the curve. So it will be value-added adjacencies, which we will get into. And with scale, mix enrichment and the scale leverage, operational synergies will also give us additional margins.
Now, specifically on the journey, on maybe some of our bigger brands in Aashirvaad, maybe Supratim, you can come in there.
Supratim Dutta — Chief Financial Officer
I’ll be mindful of not calling out any specific numbers, because those not available in the public domain. So, I’ll restrict myself to the overall numbers. But just talking about the four — five big categories, like I mentioned before, they’ve had a very good trajectory in the last three or four years, and that’s one of the reasons why you’ve seen that the overall table of margins have actually improved quite substantially over the last three or four years, like I said, about 640 basis points from FY ’17. This has been powered by the four brands that we talked about in the morning and also some of the other categories like Classmate Notebook etc., the — even the Mangaldeep Agarbatti business, some of these are in the double-digit EBITDA margin profile, which is continuously kind of helping us increase the profit pool of the FMCG business, and also helping us on the profitability side per se. So, I think some of the journeys that are there in the recent past have really got to do with the premiumization of the portfolio, the go-to-market strategies that are involved in all of these categories, and the constant kind of take out of costs in the supply chain that has helped us in this journey.
So, if you look at atta per se, I think we have to look at it slightly differently. The name of the game there is to really convert and really seize the opportunity more than choosing a profitability metric as a percentage. What we’re trying to do there in the category, like it was mentioned in the morning presentations, is also to look at the realization per kg. So, atta, obviously, is at a relatively lower NSR per kg. The game within the staples category is really to move up and address value added adjacencies. And the example of, vermicelli has been already — we talked about. The endeavor really is to move up the value ladder and really get the NSR per kg up using the Aashirvaad franchise. So, the atta, on staples game, is slightly different. We are not really just chasing profitability as a number. We are trying to really maximize the opportunity of a profit pool by leveraging the very strong brand that we’ve created in Aashirvaad.
Karthik B — Head of Corporate Planning
Thank you, sir. I’ll move onto the next question. Basically another couple of questions in FMCG before we get into the other businesses. Obviously, I’m not taking the questions relating to structuring at this stage that I’ll bucket and take it at a later time together.
Can you elaborate on working capital management measures? Given that some of the presentations covered ICML strategy quite well, can you please elaborate on working capital management measures in the FMCG business?
Sanjiv Puri — Chairman and Managing Director
Supratim, would you like to take it?
Supratim Dutta — Chief Financial Officer
So, it was on working capital management. Yeah. So, working capital, I think, if you look at our — firstly, we don’t have debtors, that’s a great kind of business model that we have. It’s largely a cash and carry kind of model, largely speaking but for modern trade and some institutional sales and e-commerce. We don’t — large part of our business does not have exposure to any debtors. What we do have exposure to from a working capital perspective is inventory. We have a lot of inventory on the books, because of the atta business. We buy a lot of wheat during the year and we consume it through the year. Of course, the dynamics of a particular year maybe different, but typically speaking, we do buy more wheat at the beginning of the year or the first half of the year and we consume it through the year. But overall from our intensity perspective, inventory is the big one. And if you look at our Classmate business, the stationary business, the debtors component is high, because it’s a credit business. And the wholesale dealer has to be rotating his money and there is a certain amount of credit that is — that has to be given.
But having said that, I think we are looking at a lot of initiatives out here, starting from Smart Buying to taking the right kinds of hedges at the right time using a lot of technology, lot of digital to help us guide in that journey. So, I think these are the interventions we are looking at. We are also looking at kind of, especially in the stationery business, early collection through incentives, so that debtors don’t get kind of extended, especially in the uncertain conditions or the market that we saw in the last 18 to 20 months. So, we’ve been quite sharp and agile in the marketplace. A lot of focus on collections in that business. And I must say that even while sales were subdued because of what happened last year in that business, we were able to collect the highest ever kind of numbers in FY ’21. So, I think there’s a lot of focus on working capital management. But the big one, like I said before, is the wheat inventory that we have on our books, that is for the atta business. And the name of the game there is to really sharpen the buy, the timing and also to ensure that we have the right buying strategy from a timing and geography perspective. And that’s where our agri business comes into the picture. And what we are doing now increasingly is to use a lot of digital tools, like I said. We have something called Project Astra, which is now running for the second season. We are hoping to get better and better using that tool as we get more and more data into that algorithm-based system. And we will obviously leverage that to the hilt as we go forward.
So, I think we have a 360 degree intervention from a working capital management perspective. And — but like I said, the big element of debtors, which many other companies may be having, we don’t really have too much of that. The focus is on inventory management and also using a lot of digital and technology to sharpen our buying processes.
Karthik B — Head of Corporate Planning
Thank you, sir. I’ll move on to the next question. The last question on FMCG before we move to the other business. Some investors have asked about benefits under the PLI scheme, now that the approval has been granted. What is the investment amount committed, which areas and what are the sizing of incentive amount that the Company is likely to obtain?
Sanjiv Puri — Chairman and Managing Director
Supratim, can you — will you take that?
Supratim Dutta — Chief Financial Officer
So, I think in the morning presentation Hemant did mention about ITC being chosen or has been selected as part of the PLI scheme, and we’ve got the three buckets, the Ready to Eat, the Fruits and Vegetables, and Marine. Marine is, of course, very small, but the first two are relatively big. We — again the numbers are not out in the public domain, so I’ll not — I’ll refrain from giving out the exact numbers. But it’s — ITC would be one of the largest kind of players committing to incremental investments on the PLI scheme. And the scheme is quite well understood. There is a threshold of topline growth that is required. And you get a particular level of incentive, which is capped to the particular categories overall investment that — the budget that the government has. So, we should be able to recoup the total investments in the medium term through the incentive route.
But what it really does is to kind of give a real push to investments in food processing and also to brand building, which is really very close to our heart. As you saw in the morning, we have incubated a lot of Indian brands, and this really gives us a window and a support from the government, and it’s very welcomed from the government to support companies like ITC who really are the largest incubators of Indian brands in the country. So, like you’ve seen, our exports have doubled in the last two or three years, and we really want to use this as a good support for us to scale up in target markets in the identified categories. So, we have — Hemant talked about certain markets, we are looking at many more. And I think this is a big support that we will get through the brand building expenditure, reimbursements that we will get from the government quite apart from the first three buckets that I talked about.
So, it’s quite encouraging scheme. We are very thankful for the government to do this in quick time. And we will do our best to leverage the scheme to grow the business and scale up Indian brands in export markets.
Karthik B — Head of Corporate Planning
Thank you, sir. One last question on FMCG. In the new strategic landscape, is the previous target of 1 trillion in terms of revenue by 2030, is it still valid?
Sanjiv Puri — Chairman and Managing Director
When the target of INR100,000 crores was spoken about some years back, that was I think multi-articulated aspiration and vision of the enterprise, right? And when it was articulated, it was probably our target which was envisaged at maybe 17, 18 years later. So, it was more in the realm of an aspiration and to galvanize the enterprise to create a business at scale. And also, so that this whole aspect about scale comes into the thought process, right? That’s the background to this. And we are still committed to building a much larger FMCG business than we have today. And we’ve articulated today our approach. And we have very clearly said that the categories that we will enter into even in staples, although in staples itself, we probably enjoy unmatched advantage and efficiencies because of scale, but we would like to get into more value-added segments, leveraging the power of the brand there, because we are very committed to growing at the top quartile of the industry, and at the same time, we want to sustain the trajectory of margin improvement that we have had in the last few years. Yeah, we know that this year is an aberration for reasons that we have already articulated, but we would like to continue this trajectory and be the top quartile of the growth, that’s how we are seeing the future of FMCG industry. And yes, there is clearly a lot of headroom to grow in all the areas that we are into. And given that per capita consumption and given that penetration levels are low, I think there is immense opportunity to achieve this kind of aspiration.
Karthik B — Head of Corporate Planning
Thank you, sir. I’ll move on to the hotels business. What is the status of recovery in the hotels business? Second question, to finish of the hotels portion, with waves of pandemic in varying degrees across different geographies, do you think there could be structural long-term impact on business travel? If so, how is this likely to affect the industry and ITC’s own hotels business?
Sanjiv Puri — Chairman and Managing Director
Well, in line with the much faster recovery that we have experienced, post the second wave, even the hotel industry is posting a much smarter recovery. I think the increased vaccination is giving — is providing further confidence to people to travel. So, we saw in Q2 itself, we were, at least at the cash level, we were — we did not lose any money, we were cash positive. And we’d be progress that we have seen in the industry, we now find that leisure destinations are doing well, leisure travel is doing extremely well. But yes, bulk of our business is also business travel. Business travel is maybe about 40% or 50% of what it was pre-COVID. ARRs at about 70% of what it used to be pre-COVID. Occupancy levels are more or less we have achieved the pre-COVID levels. So all in all, there is progress. And I think, as I said in first quarter, we were cash breakeven. I think the trend this quarter is even better. So, it should be — we should look at better — all indications are that it will be even better in this quarter. And with the vaccinations progressing, with the case count being low, I think progressively, the industry will continue to pick up. It should be on a much firmer wicket next year, though it may take a little longer to completely normalize.
As far as the structural changes are concerned in the industry, I think I want to call out a few things. One, the common trend we saw in FMCG of people preferring trusted brands, I think comes here also. So, hotels that can assure safety, hotels that can assure hygiene or brands that can assure them will certainly be preferred. And in ITC hotels, we have the reassure program. It is the only program that is certified by DNV.
Number two, work from home and meetings through virtual means is a reality of life. It is going to stay. At which way will it work? Is it going to work? Is it going to work in terms of reducing travel? Or is it going to work in a way that I take less frequency of travels? I spend more days in a particular location, do all my work, do some of my work online, and then go back, instead of making frequent trips to that locations, because I can work from any location. So, these are things that we will see in future, but anecdotally, I have seen people that have come to — have traveled to cities for a longer period of time and try to wrap up a range of activities while they continue to do office work from — they would be virtual meetings. So this is something that will evolve over a period of time.
The other factor to keep in mind is that the outbound tourism in India is far greater than inbound tourism. And I think with this — during the pandemic, a lot of us have experienced what India has to offer. And I do hope that this will have a rub off effect and actually will be outbound — some of the outbound tourism will actually over a period of time get converted to inbound tourism. So, I’m quite optimistic that going forward the industry will continue to progress and we’ll do well.
Karthik B — Head of Corporate Planning
Thank you, sir. I’ll now move on to some questions on the Infotech business. This question has comes from several analysts. The Company has been highlighting the performance of this business in its quarterly investor presentation. What is the Company’s view on this business potential of this segment — of this business? Is the Company evaluating any M&A in this business?
Sanjiv Puri — Chairman and Managing Director
We see tremendous potential in this segment. It’s a very large segment. It’s an area where India has strengths. And I think more specifically at the time of disruption, at a time when digital technologies are directly being leveraged to create business outcomes, I think at that point of time domain becomes important, interplay between domain and technology becomes important. And the fact that Infotech is into some verticals where ITC also has domain strengths that gives us some strength in from a domain perspective. So, I think the opportunity is immense, and that’s why we are providing impetus to this business, that’s why we have brought in the right talent to power this business.
Yes, in this space also, in this industry also, we are absolutely open to M&A, to look at M&A in areas that are going through — that will be aligned to our strategic roadmap that will help us build the sectors that we want to build, because we certainly want to be a company that is very sharply focused on certain domains and technologies. So, what aligns with that is what interest us and we are actively seeking out opportunities there, should they come, we will certainly try and take it forward.
Karthik B — Head of Corporate Planning
Thank you, sir. Is the Company considering listing the Infotech business separately?
Sanjiv Puri — Chairman and Managing Director
Well, ITC Infotech is a 100% owned subsidiary and listing is certainly a possibility. And these are issues that we examine from time to time. And when it is believed that it would be a good idea to do so and when it is felt also that it is, what I would I say, commensurate or material enough and when we feel it is worthwhile doing it in the interest of all stakeholders, I think at that point of time, certainly the Board will consider that. But these are certainly we are very open and flexible to these areas. These are areas that we debate, and look at the context and look at the timing. So, there is a context and timing to everything, and we have to a project with an open mind and do what is right at the right time, and that’s the approach that we will take.
Karthik B — Head of Corporate Planning
Thank you, sir. I’ll now move on to certain questions relating to structuring and use of cash. First up, what are the demerger plans of the FMCG business to unlock value?
Sanjiv Puri — Chairman and Managing Director
Okay. So, as far as the FMCG business is concerned, the strategy right from the beginning has been to leverage institutional strength, that’s how this business has grown, that’s how this business has evolved. And there are channel synergies, there are operational synergies, there are product development synergies, there are many — and of course, there are commercial synergies as in the cost synergies also at play here. So, there are many benefits that are available. It is not to say that FMCG businesses cannot be built without this. They can be, but we believe that we should bring something unique to the table, and that’s why we brought in the institutional synergies. And you will also note that although the margins are lower, but the fact is the cost of building this business has been reported to be far more efficient than the other routes that would have been available. We’ve build this business at a more efficient basis, because we were able to leverage institutional strengths. So this is how we have built it, and this is where we are. From this point, we are certainly open to seeing what is right to create value for shareholders. And these are things that we evaluate from time to time. But when we evaluate it, we certainly look at the majority of the business, the business context and look at — fundamentally look at what is required for sustained value creation, because that’s a fundamental pillar. Sustained value creation is a fundamental pillar that must we ensured by any enterprise. So, we look at those facets also and then take a decision. But these are things that we examine from time to time and nothing is cast in stone.
The — how we organize ourselves flows from business strategy. If you go back in history, the paper business, the hotel business was a separate business. It was brought in for a purpose. In the year FY ’20, we took a view as the hotels business was mature, this business strategy also was a focus on the asset right strategy. So, we thought it’s the right time to look at alternate structure and it was very clearly articulated in the annual report. We have reiterated that we remain committed and open to it, but it will have to be done once the industry recovery dynamics are kind of established. It does not make sense to do it when the industry has not fully stabilized.
So this — I’m just giving you this examples to say that nothing is cast in stone. We’ll continue to look at it and do what is right for the business to create sustained value, which is what we are committed to. And also to look at all these opportunities for unlock in the context of business maturity and business standard and business context and do what is right for sustained value creation. We are completely committed to it. And in the past — whilst this is not the question, but I might also just add, that there are — there have been questions or feedbacks on various facets with the ultimately with the objective of value creation, and I need to see feedback earlier on profitability. And that’s an area that we had that time also said that we are going to focus on it and focus upon that and also with scale in some of our older businesses, the trajectory is going to change and that has seen. So, of course, the discourse is now moved to another question relating to FMCG.
Similarly, there was a question on asset productivity as far as hotels are concerned. This question, again, in the year 2017 itself, we announced the movement towards an asset right strategy, and work started in bright earnest and we are seeing the momentum build up now. There was also some pointers as far as capital allocation is concerned. And that’s what also led us to bring in the new dividend — to bring in a very clear and very sharp dividend distribution policies. These are certain steps that we have taken based on certain feedbacks that we have received, and we continue to examine and discuss all the suggestions and questions that we get, and we will do whatever is right for the long-term sustained value creation. We will not do anything that is only merely for the short term. That’s the only condition I would like to put into — put as a parameter to whatever we do.
Karthik B — Head of Corporate Planning
Question relates to structuring of the hotels business, and this has come from several analysts from JP Morgan, Morgan Stanley, Moon Capital, o3 Capital, JST Investments, etc. The Company had indicated that it is working on alternate structures for its hotels business while the pandemic has impacted the hospitality business around the world. What are the avenues that the Company is evaluating? And where are we now with regard to these steps?
Sanjiv Puri — Chairman and Managing Director
We are committed to whatever we have stated in FY ’20. And we’ve also reiterated this last year saying that as industry recovers, we will take it forward. I will not — I am mindful of the fact that the — whatever route we take has to be formally approved, and then only we can bring it out, so I would not get into the details of that. But I can only reiterate that we are committed to it. It’s not something that has been shelved or going to be postponed for the long term. It’s certainly on the cards. As the industry recovers, we will do what we have said in our annual report.
Karthik B — Head of Corporate Planning
Thank you, sir. What are the capex plans for the Company in the next three to five years, which segments, and what kind of allocation can we look forward to?
Sanjiv Puri — Chairman and Managing Director
Supratim, would you like to take this?
Supratim Dutta — Chief Financial Officer
So, see on capex, we — I think it’s good to look at a three-year perspective and not just annual number, because capex, by definition, is long term and cash flows tend to be lumpy. Firstly, I think if you look at FY ’21, it came off a year which was quite disrupted and we spent only about INR1,600 crores. So that needs to be seen as a kind of an exception as a particularly low number. But I think a good way to think about this is about a run rate of about INR3,000 crores per annum, so that takes us to about roughly about INR10,000 crores. And like I said, it’s not going to be linear. But looking at a three-year perspective, at an average run rate of INR3,000 odd crores, that could be a good way to look at it. To set this in perspective, like all of you know, our total depreciation for the Company is about INR1,600 crores. So, this is about 80% more than the depreciation number on a per annum basis, which takes us to about INR3,000 crores run rate per annum.
As far as where this money is going to be deployed, obviously, the large user of this capex is going to be FMCG. Our estimate is that about 35% to 40% of this number would be allocated towards FMCG, largely in creating new capacity. We already have the ICMLs, but as demand grows, we would have to put in more lines and that’s a good problem to have, in a matter of speaking. As we see demand, we put in more lines in a modular manner. Lot of the infrastructure, the utilities, the base foundations are already there and we don’t have really spend a lot of money on those anymore. So, I think 35% to 40%, again, would be a good way to think about the allocation to FMCG.
The next bigger user of cash would be the paperboard business. By nature, it is capacity-led growth that comes in, and therefore, we need to augment our capacity as we kind of reach 100% utilization, which is again a good problem to have. So, paperboards is going to be perhaps 25% to 30%, around that kind of using cash of that INR10,000 crores in the next three years.
We talked about hotels pivoting to an asset right strategy. So, the hotels that are being kind of built right now where almost getting to the final stages. So, the cash flows — the residual cash flows would happen in FY ’22 and ’23 maybe. So, if I look at a three-year perspective, again, hotels should be around 10%. But thereafter, we should see even lesser allocations to the hotels business, because of the large kind of impetus that we are giving to the asset right, the management contract, route of growth from here on.
We will also have capex in agriculture — the agribusiness. And a lot of work that is happening around digital and sustainability would be the other horizontal uses of cash as we go forward. So, that’s pretty much the way we are thinking about capital expenditure at this point of time.
Karthik B — Head of Corporate Planning
Thank you, sir. The Company has a lot of cash in the balance sheet. How is the thinking about M&As especially in the FMCG space? In the FMCG business, is there potential entry into new categories? Could you talk about some portfolio gaps that you may plan to bridge inorganically?
Sanjiv Puri — Chairman and Managing Director
Supratim, would you like to take this?
Supratim Dutta — Chief Financial Officer
Yeah, sure. So, M&A, of course, has been called out as one integral part of our growth strategy. It certainly adds one pillar, one additional vector of growth. And we also talked about exports. I think other than organic, we are really looking at M&A and exports to be the two newer vectors of growth for the Company. Largely the action is going to be around, I would say, FMCG, and I think the Sunrise acquisition, the Savlon acquisition, the Nimyle acquisitions have given us a lot of confidence that we can perhaps strategize well on the key targets and the spaces that we want to look at. So certainly, it’s an area of great interest of M&A, but it has to be value accretive. That’s the main, I would say, filter in a manner of speaking. We want to be not just buying top-line and bottom line, but also creating value on the investment that we put out.
So I think when we look at assets, and we have a lot of pipeline, we have a lot of deal flow, as you can well imagine. But we have to be choosy about it because we want to create value over the long-term. So the key question is, what are the strengths we bring to the table? And what capabilities do we acquire through the M&A route? Some of these filters and some of these thoughts are very important for us to select the target. And of course, then it’s a question of how do we bring ITC synergies to play? And I think like in the morning presentation, you saw in foods.
In Sunrise, we found a very, very good asset where we could bring a lot of ITC synergies to the table, and we also got something really valuable from the asset that we acquired. So really it’s a win-win from an M&A perspective. So I think that’s a very good playbook that is there for us. And we are quite hungry and we have the appetite, but we need to create value on the asset. So therefore, valuations also are important. It’s not that we just want to acquire at any value. Valuations are important, and we would be mindful of that as we go in, because all these transactions have happened in the Indian space with 8 times, 9 times kind of sales multiples. Those we find very difficult to kind of fit in our playbook even if the asset is reasonably good.
So that is a filter that we need to always kind of work through, but we are very, very keen to add to growth and profitability and value creation through the M&A route. The spaces we are looking at, like I mentioned, is largely FMCG. It could be regional brands like Sunrise, it could be completely new areas, which are adjacencies like Savlon did in the case of Personal Care, and Sameer’s presentation highlighted what it opened up for us as a company through the latent equity of the brand that we acquired.
So I think, like I said, we have a pretty clear, I would say, idea as to what we are looking for and the way we are looking for some of these opportunities. And you will see more of this in times to come.
Sanjiv Puri — Chairman and Managing Director
So I may — if I may just add to it also is that on similar win outside of ITC Limited, our fully-owned subsidiary, ITC Infotech is also viewing M&A in the same manner as Supratim described them described for FMCG. So that’s another area where we are actively pursuing this vector.
Karthik B — Head of Corporate Planning
The next question is again got to do with the cash in the balance sheet. Will you consider special dividends and/or buyback of shares as a way of returning cash to the shareholders?
Sanjiv Puri — Chairman and Managing Director
So Supratim, maybe you can answer — you can take this.
Supratim Dutta — Chief Financial Officer
So I think, firstly, let’s look at the overall picture of capital allocation. I think Chairman explained the two large, I would say, changes that have been brought around in the last few years. One is of course the asset-right strategy in hotels, which used to be a larger user of cash in the recent — in the past. And the second one is to actually looking at our needs and our capital expenditure plans and our growth plans, what should be the payout ratio. And we’ve actually gone ahead and kind of baked that in the distribution policy itself. So we’ve called out that it’s 80% to 85% over the medium term as far as the annual profits are concerned. So we have executed upon that.
So now the question is on surplus cash. So if you look at the payout ratios and the kind of cash generation we have, we are not really adding to the cash surplus that we have on our balance sheet anymore. In fact, if you look at March ’21 over March ’20, the surplus was down by 25% because we paid out more than — based on the new ratio. So actually, we’ve depleted the surplus.
Now the question is — as far as special dividends are concerned, that’s been a route that we’ve had followed in the past, but I think there was a lot of feedback from investors, which we fed back to our board and senior management and the call was taken that more than special dividends, the value of that return of cash in the form of ordinary dividends is of a higher order. And we listened to the investors, we listened to shareholders and we — I must say, the board acted quite promptly to take that on board. And we have preferred to pay out the, I would say, the higher amounts of dividend totally in the form of ordinary dividends. In fact, last year in FY ’21, although our profits had suffered because of the pandemic, we did not really stepped down on the dividend per share. In fact, we took it up as an ordinary dividend per share. Maybe in some other time, I’m guessing, this could have come through as a special dividend. But I think the value of ordinary dividend is better, is higher because it gives you the predictability, it gives you the certainty and visibility to long-term shareholders. And we really value long-term shareholders, and the feedback was well received by us and we’ve acted upon it.
Now the question about what are the other forms including buybacks is always there? Like Chairman mentioned to the response to the previous question, we are opened to all these different methods. But so far, I think our — especially in the last 18 to 20 months, our focus has been to get our earnings growth momentum up and to also maintain the threshold EPS, the dividend per share. I think we have thought about that EPS maintenance to be a very important, I would say, objective in these times because lot of shareholders have come into the stock and they had really value the dividend per share that they earn. So we didn’t want to kind of let up on that, and we’ve actually maintained the increasing trajectory of the EPS.
So I think that’s what we have done so far. But as far as the other routes are concerned, they’re all on our table. It’s something that we constantly look at. Like Chairman said, we are not — nothing is really cast in stone, and we shall look at all the options possible to and choose the best option that is in the interest of long-term value creation. So I’d just put it that way that these things are looked at on an ongoing basis and the board will take the right decision at the appropriate time.
Karthik B — Head of Corporate Planning
Thank you, sir. The company has recently acquired a D2C brand, Mother Sparsh, what is the specific strategy? Any synergies for existing ITC FMCG businesses?
Sanjiv Puri — Chairman and Managing Director
We had a discussion around digital during the day and there was a specific presentation on it where we have — and we’ve also articulated our position very clearly that given the manner in which digital is evolving and digital is being adopted by society, we see ourselves as a future tech enterprise, which is really a future-ready digital enterprise and that’s the shape of things to come in the future.
Digital will be a very important component. And D2C is a model that is gaining traction, and it’s being the inspiration comes from a lot of the tech entrepreneurs, some of the unicorns and very successful brands have been created, successful platforms have been created. We also believe that platforms will be a very important tool for brand owners in future. So these are things that we will invest behind both organically and inorganically. And that is why we have made the investment in Mother Sparsh.
As far as synergies are concerned, yes, there are going to be synergies of learnings, there are synergies in — we will be looking at synergies as far as innovation is concerned, synergies as far as creating some offline salience of products is concerned. So all these synergies are on the table and we will discuss and review those as we go along and as the business of Mother Sparsh evolves. The idea of investing is also to work with the founders and help them scale up and make a great business.
So all of these options are available. We have a large R&D center. We have a wide distribution network. We have lot of talent in the organization. We have skills in digital also. So we will see where two-way experience sharing can also happen. So all these are possibilities and fits very well with our overall strategy and vision to be a future tech enterprise. And hopefully, we will see more of this not only organic, but more of the inorganic piece going forward in this space as well.
Karthik B — Head of Corporate Planning
Yeah. We’ve already ticked past 5:00 PM, but with your permission, I’ll still accommodate a couple of questions, sir.
Sanjiv Puri — Chairman and Managing Director
Yeah, sure, please.
Karthik B — Head of Corporate Planning
How is the company engaging with the start-up ecosystem is the next question.
Sanjiv Puri — Chairman and Managing Director
Okay. So first of all, we do invest through certain private equity or VC funds that gives us visibility to a range of tech-enabled brands or start-ups in the country and what business models and what progress these companies are making that provides us information, provides an opportunity to interact. Besides that, we also participate in various events where we can get updated. We also go to places where such start-ups are being incubated or have some centers of — centers where they are kind of being mentored.
So we have enormous — we have a comprehensive network to first get visibility to what is happening, understand what each start-up is trying to do, we shortlist some start-ups, and in certain cases, we have started, though not many, we have started to make direct investments, but there are many more cases where we are directly working with start-ups in helping them scale up their model, as also not testing out some proof of concepts and also seeing, identifying areas which can be scaled up for mutual benefit. There are huge number of start-ups we are working with.
So that’s the way we address the issue of start-ups. We have a dedicated cell that is constantly in touch and integrates, identifies the start-ups and links them with the respective business. So there is kind of undiluted focus on this space. We also have a fund set aside for us to invest whether through private equity or directly in the start-ups for this purpose. So it’s an area that is receiving a fair bit of or a lot of attention, I would say, within the company.
Karthik B — Head of Corporate Planning
Thank you, sir. The last question. This relates to shareholding. Foreign institutional holding in ITC has been coming down due to ESG concerns. On the other hand, you have been highlighting that ITCs ESG credentials are top grade. Can you please briefly talk about any specific engagement that ITC is having with foreign institutional investors on ESG and what their concerns really are?
Sanjiv Puri — Chairman and Managing Director
Well, this is an ongoing engagement with investors where we share our ESG credentials. We also share our roadmap and our vision, as my colleague articulated during the day. This is an ongoing activity, and it has been very clearly acknowledged that ITC’s credentials in this space are exemplary. There are of course various views that investors have taken on ESG. Some have chosen to take a root of exclusion. Some have chosen or some are in fact moving towards what has now understood as a holistic integration and which is more about how you are transforming, how you’re conducting your business.
So this was an area that is evolving from. Only exclusion we are finding a move towards the [Indecipherable] part, but this is an evolving space and we have to watch it. And there are clearly funds that have taken a view that we do not wish to invest in set of sectors. And there are funds that are now moving towards the idea of holistic integration. So there is a churn happening, but we continue to remain engaged, continue to share our credentials and continue to invest to strengthen our credentials, whether it is from creating environmental capital, social capital or also from providing exemplary governance standards, and you had visibility to all of this during the day.
Karthik B — Head of Corporate Planning
Thank you so much, sir. We’ve already been here for about six hours. I’m sure there are plenty of other questions that we’ve not been able to accommodate in the Q&A session, but we must draw a line somewhere. I wholeheartedly thank the panel for comprehensively answering the questions that have been asked by analysts. But I also hasten to add, I thank all the analysts for putting in the questions today through the chat box right through the day. Thank you so much.
May I now request you for your closing remarks, if any, sir.
Sanjiv Puri — Chairman and Managing Director
All right. Thank you, Karthik. And first of all, may I thank all of you for joining us today and being here for this rather long session. And I am quite encouraged by the range of questions that are asked, and I thank you for the interest that you have in the affairs of the company. And as I close, I will just reiterate that we are completely committed to creating long-term value for shareholders and for all our stakeholders. This is what our primary role is and the fundamental of that starts with competitively superior performance which we have delivered and which we continue to focus on in the last few years up to the pandemic. Our EPS went up by 47%. We’ve also seen the trajectory in FMCG during that period. And we are also now seeing the recovery. So performance is receiving the right kind of attention.
We have also shared with you what ITC NEXT encompasses. ITC NEXT is the — the focus is to make the organization contemporary, make sure the organization is nimble and consumer-centric, bringing the contemporary skills and technologies that are required for organizations to win in the future. It’s about identifying newer vectors of growth in each of our businesses. It’s about addressing or tweaking our strategies or bringing in new elements in our strategy to address some challenges or headwinds that our businesses have faced in the future. And all this is certainly work in progress and all this — a lot of it has already been. It’s not that it’s just suddenly happened. This has been — these are things that we have been working on in the last two, three years and we are starting to see the results of that. And the results that we have achieved so far certainly give us immense confidence. So we look to the future with immense confidence. And we believe that the kind of performance that we aspire for we should be able to deliver on the back of our institutional capabilities and the robustness of our strategies.
And with this, I once again thank you very much for being here today and thank you very much for your support. And if there’s anything else you wish to know, I think the Investor Relations team is always available. Thank you very much.
Karthik B — Head of Corporate Planning
Thank you.