We will not buy at any price, says ITC's Hemant Malik on acquisitions

ITC will pursue selective, value-accretive acquisitions while banking on premiumisation and a gradual recovery in consumption to outpace FMCG industry growth

Despite two challenging years for the fast-moving consumer goods (FMCG) industry, ITC believes it can grow faster than the market. In a video interview, Hemant Malik, executive director of ITC and in charge of foods and personal care products businesses, tells Ishita Ayan Dutt that growth will be led by multiple vectors – from selective acquisitions to a focus on premiumisation, aided by green shoots of recovery seen after a spate of tax cuts. Edited excerpts:

 

The last two years have seen quite a few acquisitions – from organic staples to frozen and ready-to-eat. How central is M&A to ITC Foods’ growth strategy?

 

As an organisation, we were earlier shy about acquisitions, with our primary focus being on building brands from scratch. However, with the ITC Next strategy articulated by the chairman (Sanjiv Puri), we have been actively evaluating acquisition opportunities.

 

Our approach to acquisitions is guided by three strategic pillars: building a future-ready portfolio, focusing on high-growth categories aligned with emergent consumer trends, and acquiring strategic capabilities.

 

Across all these three levers, the principle first is to look at opportunity areas that offer large headroom for growth and second, that we must be able to add value to the acquisitions by leveraging ITC’s enterprise strengths.

 

In the case of 24 Mantra Organic, sourcing represents a key competitive advantage, and given ITC’s agri expertise, we saw a strong opportunity to scale the business. With Yoga Bar, we have evolved the value proposition post acquisition, sharpening the focus on protein-led offerings. Prasuma, meanwhile, strengthened our future-ready portfolio in the frozen space. And for Sunrise, the key factor was its huge growth potential in spices.

 

So, acquisitions will be an important part of our growth agenda for the foods business, but not the only one. We are building a future-ready portfolio through both organic and inorganic vectors to win today and tomorrow.

 

But you have stayed away from big-ticket acquisitions…

 

The acquisitions that we have made will get scaled up over a period of time. We have seen how some of the deals in the food industry have taken place at very high valuations.

 

We will not buy at any price. We will invest only at valuations we believe are right, because ultimately it is about creating shareholder value. Our focus has always been on value accretive acquisitions.

 

While acquisitions have expanded your portfolio, has the pace of ITC’s growth in the foods business slowed down?

 

The last two years have been challenging for the FMCG industry, with volume growing at 3 to 5 per cent. We have grown at the market rate or higher, and the pace of growth has certainly not slowed down. We are one of the top packaged food companies in the country.

 

That said, our ambitions are higher. Our objective is clear – we aim to grow faster than the industry. We have a robust strategy in place to drive agile innovation in product mix, harness data science and technology, and leverage emerging channels efficiently to drive growth.

 

Growth will be anchored on emerging vectors like premiumisation, health and wellness, fresh, sensorial experiences, indulgence and convenience, among others.

 

We are also seeing a positive impact of the goods and services tax (GST) rate reduction on the ground.

 

Are you seeing an uptick in consumption?

 

We are seeing an uptick in consumption from the third quarter onwards. Across many categories, GST rates have been reduced from 18 to 5 per cent, while in food segments, the reduction has largely been from the existing 12 to 5 per cent. This benefit has been passed on to consumers through a lowering of prices, leading to a reduction in the overall spend outlay for consumers.

 

The positive impact is beginning to reflect in consumption growth across both rural and urban markets, with rural performing better. This is being driven by improved farm incomes and other favourable macro factors, including progressive measures taken by the government, with the GST rate cut providing an additional boost.

 

Urban consumption has been a cause for concern for a while now. What is the current scenario?

 

I believe the data from syndicated surveys do not capture the critical and fastest-growing ecommerce and quick commerce channels, leading to inaccuracies and reflecting in lower growth numbers.

 

Inflation has weighed more heavily on urban consumers, with rising costs such as rentals and education increasing the overall cost of living and tightening household budgets. This pressure is less pronounced in rural areas, where such expenses are not as inflationary.

 

However, government support measures – including GST rationalisation and income tax relief – should help improve the situation over time.

 

We are seeing green shoots of recovery in urban consumption from the third quarter across every category.

 

Premiumisation has been a focus area for the company. Is the segment likely to grow?

 

The premiumisation story will continue. In industry terms, products priced about 20 per cent above the average are considered premium. But a super premium segment, priced around 50 per cent higher, is also emerging. This super premium space is becoming a key focus area for us at ITC, particularly with the growth of quick commerce, which enhances accessibility.

 

We are tapping into this segment through some of the vectors where ITC is creating value for consumers, including freshness-led offerings, health and wellness propositions, as well as enhanced sensorial experiences, and are witnessing encouraging consumer response.