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ITC Ltd.

BSE: 500875 Sector: Consumer
NSE: ITC ISIN Code: INE154A01025
BSE 13:05 | 17 Jan 291.90 -2.10






NSE 12:54 | 17 Jan 292.00 -2.05






OPEN 295.95
VOLUME 220896
52-Week high 322.70
52-Week low 251.30
P/E 31.02
Mkt Cap.(Rs cr) 357,487
Buy Price 291.75
Buy Qty 736.00
Sell Price 291.95
Sell Qty 708.00
OPEN 295.95
CLOSE 294.00
VOLUME 220896
52-Week high 322.70
52-Week low 251.30
P/E 31.02
Mkt Cap.(Rs cr) 357,487
Buy Price 291.75
Buy Qty 736.00
Sell Price 291.95
Sell Qty 708.00

ITC Ltd. (ITC) - Chairman Speech

Company chairman speech

Chairman Speaks

- 2014

I have great pleasure in welcoming you to the 103rd Annual General Meetingof your Company.


In the best traditions of democracy a new Government was recently elected with aresounding mandate. Shri Narendra Modi's clarion call for Development through GoodGovernance touched a special chord in the hearts and minds of people. His vision andpersona has ignited new optimism among almost all sections of society. There is renewedhope that a new resurgent India will be built over time bringing pride and dignity toall. The spirit embodied in "Sabke Saath Sabka Vikas" indeed holds a promise ofinclusive and participatory growth.

This is potentially a turning point in history and an opportunity to collectivelyscript a new destiny for our nation. As a Company deeply rooted in India's soil ITCis committed to realising the Vision of a dynamic prosperous and self-reliant India. Itis your Company's avowed mission to be a world-class Indian enterprise serving nationalpriorities. This is manifest in your Company's determination to go beyond the confines ofbusiness to create enduring value for the larger Indian society. It is with this strengthof conviction in your Company's Values and Vitality that I once again pledge ITC's fullestsupport to the new Vision for fulfilling our shared goal of a new India of our dreams.

It is indeed heartening that despite the constraints of time and a challengingeconomic environment the Finance Minister Shri Arun Jaitley has presented acomprehensive maiden Budget addressing key reforms with a welcome focus on physical andsocial infrastructure. This should lay the foundation for long-term growth whilst meetingsome of the critical needs of the weakest in our society.


As in earlier years let me first share some of the highlights of your Company's triplebottom line performance. Amidst a challenging economic context your Company recorded yetanother year of strong performance. Gross Income registered a new high at Rs.48176crores while Net Profit increased by 18.4% to Rs.8785 crores. The segment netrevenue other than cigarettes has grown 16-fold since 1996 to Rs.21845 crores. As aresult almost 59% of net segment revenue of your Company is now from businesses otherthan cigarettes.


ITC Financial Highlights 1996-2014

1996 2014
Gross Income 5.188 48.176
Net Segment Revenue
(other than Cigarettes)
1.363 21.845
PBIT 536 12.662
Profit After Tax 261 8.785
Net Assets Employed 2.584 39229
Market Capitalisation* 5571 2.84.307

CAGR in Total Shareholder Returns in the period 1996-2014 : 25.9%

*As on 25th July 2014

This year the FMCG industry in India witnessed a marked slowdown. Notwithstanding suchan adverse operating environment your Company's new FMCG businesses recorded a robustgrowth of 16% crossing the Rs.8000 crore mark. The FMCG-Others Segment also recorded itsmaiden profit with a PBIT of Rs.22 crores representing a positive swing of Rs.103 crores.Your Company's relentless effort to build world-class Indian brands backed bycutting-edge Research & Development and innovation will continue to drive performancein the years ahead.

ITC's commitment to superior triple bottom-line contribution is manifest in itsglobally acknowledged initiatives that create impactful societal value. Your Company hassustained its position as the only enterprise in the world of comparable dimensions to becarbon positive water positive and solid-waste recycling positive for several years now. YourCompany's sustainable business models today support around 6 million livelihoods acrossthe country. ITC's Sustainability Report has been published for the 11th yearnow. The latest edition is in accordance with the new G4 guidelines of the GlobalReporting Initiative. Your Company is one of the foremost in India to report atthe highest "Comprehensive" level well ahead of the global deadline.


We live today in challenging times. The economy continues to be in a tailspin with asecond successive year of sub-5% growth. Persistent Inflation high Fiscal Trade andCurrent Account deficits have severely curbed the growth potential. The cutback ininvestments and piling-up of stalled projects also contributed to the dismal performance.The consequent de-growth of 0.7% in Manufacturing is therefore not surprising. Agriculturewas the lone performer at 4.7% though it continues to be at the mercy of vagaries ofnature. The impending impact of the El Nino looms  large with a threat ofdestabilising the critical agricultural sector. Though Fiscal and Current Account deficitshave been reined in somewhat it has been at the cost of productive expenditure anddependence on a weak Rupee for exports. The new Government therefore has truly anunenviable task of resurrecting the economy whilst ensuring that growth is equitable andcan spur more than commensurate employment.

Foremost among the priorities is the need to find longer-term solutions to deal with Inflationthe Twin Deficits and Unemployment. It is a matter of concern that the country isyet to achieve international competitiveness in several segments crucial to theIndian economy. This is evident in the composition of India's trade basket. Importsare of high value-added goods and services while exports are largely at the commodity endwith relatively lower-value added products and services. Consequently the value additionin the domestic economy is of a much lower order impacting the scale and quality of jobs.In the interest of longer-term macro-economic stability it is desirable that the tradeaccount gets balanced on the strength of export competitiveness rather than on capitalflows to finance the deficit. The vulnerability on the external front is furtheraccentuated by the build-up of accumulated international debt that is far ahead of theforeign exchange reserves. As a result the ratio of foreign exchange reserves to India'stotal external debt has declined from about 114 % to 69% over the last 5 years.

Sizeable investments are required to take the economy to a higher growth trajectory andto build competitiveness of the Indian economy. Domestic savings alone will not beadequate to fuel high levels of economic growth. It is therefore crucial toattract and facilitate both domestic and foreign investment to invigorate the economy.This must be done in a manner that encourages international players to create the fullestvalue addition within the shores of the country enabling a multiplier effect on jobcreation.

Unfortunately the ease of doing business and setting up enterprises in India is amajor constraint that deters investment. The plethora of procedural clearancesfrom local bodies municipalities district administration state and central governmentsmakes it virtually impossible to speedily implement projects. I was recentlysaddened by media reports that high net-worth Indian nationals in a position of leadershiphave invested significantly large capital in real estate assets overseas. This issymptomatic of the fact that even Indian capital has to seek lucrative opportunitiesabroad given the difficulty of investing profitably in the domestic economy quite apartfrom perhaps a serious deficit in patriotic fervour. Efforts to eliminate the extensiveprocedural logjam will obviously take time. In the interim value and job creatinginvestments will need to be supported by incentives to reward the patient and theperseverant.

Compounding the situation are lacunae in policies that have unfortunately contributedto widening the twin deficits besides restricting the job-creating potential. In myaddress today based on ITC's intimate engagement with the consumer market and the ruraleconomy I will dwell on a few areas where a balanced policy framework can lead to largervalue capture for the Indian economy and stimulate a job multiplier of a significant order.


India's billion plus population represents potentially a huge consumption market. Withrising disposable incomes and a growing middle as well as affluent class there is asubstantial growth momentum in the consumption of higher-end value-added products andservices.

Over the years India has progressively allowed free competition leading to theestablishment of a growing Indian global market. Dating back to pre-Independence days andmore so postliberalisation brands owned by foreign enterprises have held sway over thisexpanding market.

Today almost all the well-known international players market their brands in India. Consequentlya dominant part of the upper-end consumer spend has been captured by these brands.These range from high-end luxury products white goods consumer electronics computersand branded software to items of daily consumption including soaps shampoos teacoffee burgers sanitary napkins diapers baby food potato chips and many more. Thelist is unending and includes even packaged "idli" and drinking water. Incomparison the share of domestic brands is modest and largely confined to marketscharacterised by lower-income consumer groups with relatively much lower value addition.


Many of the international companies operating in India rely in part or full on theirglobal supply chains to service the Indian market. This is primarily due to thedifficulties faced in establishing competitive manufacturing units in India. Thereforetheir ready access to well-developed supply chains overseas facilitated further by loweredimport duties makes international sourcing more attractive. As a result the country'sconsumption basket has a large share of imports either as finished productssub-assemblies or components. Therefore despite the presence of multinational entities inIndia a substantial part of the value created remains outside the country. Thisis one major reason for the jobless consumption growth witnessed in recent times.

For a developing country like India with millions in poverty and a young demographicprofile that adds nearly 12 million to the job market every yearcreation of sustainable livelihoods is a crying priority. From 2005 to 2012 only2 million jobs were added annually which is well below the asking rate. It isunfortunate that commensurate employment opportunities could not be created despite thehigh levels of growth witnessed in the economy during this period. The largegrowth in the consumption market was therefore unable to unleash an equivalent opportunityto reap India's Demographic Dividend.

Multi-National Corporations possess the unique competitive ability to switch supplychains globally depending upon currency fluctuations as well as opportunities arising fromlabour arbitrage. This does not always make for a stable employment opportunity and valueaddition in the domestic economy. International enterprises must therefore beencouraged to create supply chains in India that enable larger value capture in thedomestic economy. This can be stimulated by   widespread reforms thatprogressively create conditions for the competitiveness of enterprises operating in Indiasupported by a combination of tariffs and incentives to make value-addition in Indiacommercially compelling.


The problem of jobless consumption growth coupled with the widening twin deficits gotfurther aggravated by a change in policy regime in 2009 permitting limitless repatriationof royalty to overseas holding companies. It has been reported that suchpayouts have increased by 70% since then to reach nearly Rs 40000 crores. This outflow isequivalent to about 20% of India's annual Foreign Direct Investment. This transferattracts a much lower withholding tax of around 10% given India's bilateral agreementsacross the globe thus rendering infructuous the 25% tax imposed in the Budget 2013 as aremedy.

With consumption expenditure expected to grow from the current level of USD 1 trillionto USD 3.6 trillion in 2020 such unrestrained outflows can assume even more alarmingproportions. The lower rates of withholding tax on royalty payments will entail aconsiderable loss to the Indian exchequer as this method of profit repatriation escapesthe full income tax rate that Indian companies are subjected to. Consequently the revenuedeficit will have to be ultimately borne by domestic industry through higher taxesplacing them at a competitive disadvantage.

International enterprises compete with other global and domestic players for a largerpie of the attractive Indian global market. Consequently in their enlightenedself-interest they bring in brands technology and know-how to continuously enhance theircompetitiveness market standing and profits. Therefore there is really nojustification whatsoever to allow royalty let alone limitless payouts by the Indiansubsidiaries to their overseas holding companies. This policy can thus become aninstrument of tax avoidance causing considerable injury to the exchequer and the Indianeconomy.

Royalty payments should therefore be permitted only between unrelated parties based onpurely commercial considerations with little or no governmental intervention. This willfacilitate Indian enterprises in accessing intellectual capital to compete effectivelywith international players in the Indian global market. Such a policy frameworkwill go a long way in creating a level playing field for Indian enterprises besidesensuring that the twin deficits do not get further aggravated as India's privateconsumption market grows.


The Government has rightly identified employment generation and control of foodinflation as issues of utmost priority. In this context I would like to highlight todaythe potential of two sectors relating to the rural economy namely food processing andagro-forestry. To my mind supportive  policies in these areas can significantlycontribute to job creation enhance rural incomes help manage food inflation and promotesustainable agriculture.

Food Processing

It is well acknowledged that the control of food inflation rests primarily on themanagement of supply-side constraints that fuel its growth. Even though India producesenough food consumer prices are high due to enormous wastages that also result in lowerfarmer incomes. Such wastages can be as high as 40% in the case of perishables.India processes only 2% of its agri-produce compared to 40% in countries such as Malaysiaand Thailand. A big push to India's Food Processing sector will be a force multiplier increating large-scale employment enhancing farm incomes and combating agri-wastages.Given that supply chains in this sector tend to be predominantly local and regional jobscreated will be largely in Small and Medium Scale Enterprises contributing to regionallybalanced employment.

Unfortunately high prices of processed food restrict demand and are a key constraintin the growth of this sector. This is primarily due to the cascading effect of taxationalong the value chain. Fiscal policies have subjected processed foods to taxes eventhough food itself is generally not a taxed commodity. Consequently there is lower demandfor processed food leading to low investments in this very important sector.

A paradigm change can take place if demand for processed food products is substantiallyincreased by lowering prices through a zero-tax regime on this industry. This will help inparing down prices enhancing demand thus making it attractive for investment. Aconducive policy can help create over 9 million jobs in the food processing sector 60% ofwhich can be in the rural and semi-urban areas. Over time growth in the processedfood sector will drive investment in the agri value chain and lead to productivityenhancement and waste reduction. This will also stimulate creation of infrastructure suchas cold chains storage and modern logistics. Together with other reforms related toagriculture such as the Model APMC Act improved access to quality inputs like seedfertiliser finance irrigation and extension services this would enhance farm incomesand unclog the supply side bottlenecks to eventually control food inflation in asustainable manner.

Your Company's extensive engagement with Rural India that has empowered over 4 millionfarmers is an example of the transformational potential of the processed food sector. TheITC e-Choupal has helped in raising rural incomes and productivity by developingcompetitive value chains linked to ITC's Foods businesses and by promoting sustainableagriculture. This gives me the confidence to reiterate that a concerted policyimpetus to develop India's food processing sector through a zero-tax regime can bringabout dimensional change by creating jobs enhancing rural incomes and containing foodinflation.


The second area of immense potential linked to India's Agriculture relates toAgro-Forestry that effectively addresses the traditional conflict over land-use for foodfuel fodder fibre and forests. By synergising tree-growing with crop production bothfood and wood security can be ensured thereby contributing to the conservation ofprecious natural resources. Farmers get multiple benefits by using their scarceland resources to maximise returns through both agriculture and tree-plantingconsiderably enhancing their incomes. Unfortunately the enormous potential ofagro-forestry has been thwarted by a myopic policy that has prevented job creation inIndia whilst promoting avoidable imports.

India currently imports USD 5 billion worth of wood and wood-based products such asfurniture construction timber pulp & paper packaging plywood and so on. Many ofthese imports attract duties as low as nil to 5%. The tariff policy as it standstoday makes imported wood more attractive than growing trees in India. This preventslivelihood creation in the country and "exports" jobs to countries that growtrees and sell wood-based products. At the same time these imports contribute toenlarging the Current Account Deficit.

Conducive policies ought to be crafted to boost India's natural advantage inagro-forestry and promote employment-generating wood-based industries. I am givento understand that agroforestry has the potential to create over 15 billion person-days ofemployment. To give a fillip to this sector agro-forestry must be extended allthe benefits available to agriculture including long term institutional credit andunrestricted movement of such produce within India. In addition raising import duties onwood and wood-based products to an appropriate level will encourage growing of treesthereby enhancing employment as well as supplementing green cover. In addition R&Dmust be promoted for the evolution of improved wood species that are disease and climateresistant. This could be further supplemented by suitable fiscal and financial incentives.Access to competitive sourcing of wood locally will stimulate related crafts andindustries on a much larger scale. Agro-forestry is also an important source ofcarbon-neutral biomass energy which can substantially reduce dependence on fossil fuels.Besides it is an ideal source for distributed energy systems which can effectively meetthe needs of smaller rural communities. By providing a crucial policy foundationthe entire wood-based value chain can substantially support the nation's quest forsustainable and inclusive means of growth.

As you are already aware your Company's extensive Social and Farm Forestry Programmehas greened over 160000 hectares creating over 70 million person-days of employment. Aninnovative agro-forestry initiative has further enhanced farm incomes supportingsustainable livelihoods and maximising productive land-use. Your Company's experience is apointer to the tremendous opportunity that can be unleashed by conducive policy in thissector.


In my address to you last year I had emphasised that tomorrow's world willbelong to those who create nurture and own intellectual property. Such assetsindeed form a superior basis for sustaining competitive advantage over the long run. Ownershipof Intellectual Capital will be the springboard that will propel India from a DevelopingEconomy to a Developed Nation. It will transform the country from a provider oflabour commodities and relatively lower value-added goods & services to a position ofleadership in innovation thereby earning global respect.

For a country with proven intellectual prowess creative capability and entrepreneurialability it is a sad augury that the nation is bereft of globally competitive Indianbrands. As a result the country is rendered poorer by its inability to service even itsown home market effectively. It is mission critical today to create NationalChampions who will build world-class Indian brands through ownership of intellectualproperty. It is only then that a virtuous cycle of innovation and investment willcreate new opportunities for growth with the generation of higher order sustainablelivelihoods.

The Hon'ble Prime Minister has articulated the Government's resolve to revive BrandIndia on the strength of 5 Ts – Tradition Talent Tourism Trade and Technology. Tothat I humbly add another T – for Trademarks – Indian Trademarks that aremanifest in worldclass Brands and built on the strength of superior intellectual property.A successful global brand is a badge of honour for the country it belongs to and asustained source of wealth creation. Popular brands reflect the innovative capacity of thecountries of their origin. When a country's institutions build world-class brands theyenrich their economies enabling sustainable growth and higher-income livelihoodopportunities.

I have confidence that Indian enterprises truly have the mettle to create world-classbrands. Not very long ago countries like Japan and Korea had a similar dream amidst everyadversity. Today their brands have conquered the world and earned global respect.Admittedly building winning brands is not an easy task. Successful global brands havebeen steadfast in nourishing their consumer franchise through ongoing innovation andremaining well ahead on the learning curve. Therefore the challenge of building brands incompetition with such established players is no mean task. The countries that haveaccomplished this seemingly impossible mission have done so through close collaborationbetween the governments and their companies over the long haul.

Indian companies on their part must invest in cutting-edge R&D to buildintellectual capital. The Government can provide the right signals by refocussingthe incentives to more result-oriented outcomes. Currently weighted taxdeduction on R&D expenditure is based merely on inputs without any linkage to outcomesin the form of consumer franchise. Such incentives are best linked to revenue generationthrough the sale of branded products. For instance a percentage of sales of the Indianbrands could be an effective basis for crafting the incentive.

Your Company has tirelessly endeavoured to build world-class Indian brands. In arelatively short span of 10 years a vibrant architecture of popular brands has beencrafted organically. Some of them are already clear market leaders in their segments. Inaggregate these new consumer brands currently represent an annualised consumer spend ofover Rs.10000 crores. Going forward your Company's foray into the Dairy andBeverages segments will further enrich this portfolio.

Your Company is committed to investing in India's future. You would be happy to knowthat 65 projects involving a built-up area of 28 million sq. ft with an outlay of overRs.25000 crores are currently under implementation or in an advanced stage of planning.These projects are distributed across a majority of States and will create livelihoodopportunities all over India. The shareholders present here today would be pleased to knowthat West Bengal has a high share of these projects with an outlay of over Rs.3500 croresencouraged by the conducive policies of the State. Such assets will impart substantialstrength to your Company's competitive capacity. Therefore it is my belief that yourCompany can aim for a revenue of Rs.100000 crores from the new FMCG businesses alone bythe year 2030 and realize its vision of being the No.1 FMCG player in India.

It is a matter of pride that your Company's brands have anchored the development ofcompetitive value chains benefitting some of the poorest regions of the country. Inconjunction with your Company's social investment programme for integrated ruraldevelopment these brands have enabled the empowerment of millions of disadvantaged inIndia's villages by generating sustainable livelihoods. Your Company's CSR programmeincludes farmer empowerment through the globally acclaimed ITC e-Choupal large-scaleWatershed Development Social Forestry Animal Husbandry Women's Empowerment and PrimaryEducation which together have transformed rural lives winning global acclaim andrecognition.


India's challenges require a quality of growth that creates captures and retainslarger value in India. It requires organisations to consciously strengthen valuechains that extend to the country's rural areas and backward regions empowering theweakest. Winning Nations across the world especially from emergingeconomies have supported the creation of National Champions who are prime drivers increating sustainable wealth and livelihoods. Global winning brands such as Sonyand Samsung are the fruits of that visionary support. It is time that India takesbold steps to create nurture and support many a National Champion who will createenduring value for the country with passion.

Your Company is privileged to be able to pursue a path less travelled to createmultiple drivers of growth supported by winning brands and an abiding vision to putCountry before Corporation. It is our collective aspiration that your Company should beone such National Champion in the  service of the Nation. In this journey I drawstrength from Team ITC and from their dedication and commitment.

As I conclude may I on behalf of the Board and the employees of your Company onceagain thank you our valued shareholders for your continued support and encouragement.

Thank you Ladies & Gentlemen.