It started off as the Imperial Tobacco Company, and shares ancestry with Imperial Tobacco of the United Kingdom,

but it is now fully independent, and was rechristened to Indian Tobacco Company in 1970 and then to I.T.C. Limited in 1974.

ITC. Tobacco, right? Er, right and wrong.

Wrong, because it's also been into hotels for three decades (ah yes, you say), but over the last few years, and pretty much under your nose, it's become a huge FMCG and lifestyle brand that, even though you buy it (perhaps unknowingly, unconsciously), still surprises you with the breadth of its spread. Shirts and skirts. Pasta and paper. Biscuits and candy. Soaps and perfumes. Cigarettes too, of course. All ITC products. India Tobacco Company? Yes, it still drives the business -- there wouldn't be an ITC without the filter tip that earns the company 87 per cent of its revenue. But now, three years after it was set up, ITC Foods is nudging up the ladder. It might be a distant fourth (it contributes over 5 per cent of the turnover) in terms of revenue to tobacco, agri-business, and paperboards but it has already surpassed revenues from hotels in the last quarter. And it is certainly a formidable force in the country's organised food biz. Ravi Naware is the dapper divisional chief executive of ITC Foods and he doesn't believe in mincing words. "We want to become the number one foods company in India within the next five years" he says. Wishful thinking? You couldn't be faulted for thinking so -- after all there's tough competition entrenched into the trade by big boys Unilever, Nestle [ Get Quote ] and Britannia [ Get Quote ] whose distribution prowess and popularity (some of the key brands are virtually household names) have to be matched, exceeded even, if it's to succeed. But ITC Foods isn't balking at the challenge. Already, customer loyalty is being built up for its buffet of food products -- from biscuits, pasta, spices, confectionery and ready-to-eat foods to branded commodity products like flour, salt and spices. The conglomerate has begun to grab slices of the market share from its rivals in the game. Aashirwad atta, for instance, is already the number one flour brand with a 40 per cent market share, virtually forcing Unilever to slow down its Annapurna atta. Five months after its ready-to-eat pasta under the Sunfeast brand was pitted against kiddie favourite Maggi noodles, it has established its presence with 6 per cent in volumes of the branded noodles market. Its Sunfeast biscuits are at number three position (after Britannia and Parle) with an overall 10 per cent share of the branded market. And in ready-to-eat foods, it's a close number two behind MTR Foods. A slow starter in the confectionery segment (at number four position), its Mint-O has managed to grab a 40 per cent market share in its category.

The sales figures reflect this market thrust. This year, ITC Foods hopes to do sales in excess of Rs 800 crore (Rs 8 billion), and analysts reckon this as a growth of over 90 per cent over the previous year. At this point, it's already 50 per cent of sales for both Hindustan Lever [ Get Quote ] and Britannia, and a third those of Nestle. And its target for 2006? To double sales once again, to Rs 1,600 crore (Rs 16 billion). Overall, ITC Foods has managed a 10 per cent market share in segments in which the others are operating -- biscuits {Rs 4,500 crore (Rs 45 billion), confectionery {Rs 2,000 crore (Rs 20 billion), atta and salt {over Rs 1,000 crore (Rs 10 billion) among others. Says Naware: "For the next year or two, our strategy will be to consolidate and offer a greater range in the existing categories and grow these markets." Strategically, the company has kept away from those markets where it does not have the back-end or does not see value additions. So it is unlikely to make forays into tea and coffee ("highly commoditised") or dairy products ("needs a very large infrastructure to source milk"). In both cases too, giants in the business (Unilever, Tata Tea [ Get Quote ], local brands and a huge unbranded tea market on the one hand, Nestle, NDDB and state-owned dairy corporations on the other) would make any headway in the trade extremely difficult. Juices? Potato chips? Nothing is being ruled out yet, but ITC Foods is all set to invest Rs 450 crore (Rs 4.5 billion) in the next three years {apart from the Rs 150 crore (Rs 1.5 billion) it has already put in} as part of its long-term strategy of ruling the branded food market in India. Industry analysts are suggesting it has earmarked a hefty 20 per cent of its sales for advertising and sales promotion, which should grab a good deal of media space. What's ITC doing that's different from its competitors? Well, it is working on a different model from them, but Naware says the market is too big for anyone to worry about competition. For instance, branded and packaged foods is only 8 per cent of a total food market worth a staggering Rs 5,00,000 crore (Rs 5000 billion). This is expected to increase to 15-20 per cent in the next six years. Should that happen, there's more than enough room, and then some more, for everyone to coexist. What is different at ITC though is its ability to leverage its e-Choupals as a pragmatic rural supply chain system. For the uninitiated, ITC's trading arm, the International Business Division, has set up over 5,000 e-Choupals covering 31,000 villages across the country where farmers can sell their produce directly sans middlemen or having to go to a mandi at a fair price, and also get information relevant to farming, weather and prices at other mandis, all on the net. The "sanchalaks" (supervisors) in some areas also sell products manufactured by the company, and in some cases the company has started hypermarkets (Choupal Sagar) in rural locations to cater to rural needs. This backward integration is at the heart of the enterprise. For instance, the entire wheat for Aashirwad atta is procured from e-Choupals.

The advantage, says Naware is twofold: by cutting the middlemen out, it saves 2 per cent on cost of wheat, which is significant in a low-margin commodity business; and the company classifies the quality of wheat and stores it separately so it does not mix with any inferior varieties, which is common enough if you were to buy it from a mandi. The result is an assurance of quality. Using the same route, ITC acquires spices (chilli powder), again with a similar advantage. That it has stayed away from branded rice is because the majority of its e-Choupals are not located in rice farming areas. The model is simple enough. ITC is looking at creating food verticals to integrate the foods division with that of IBD and the e- Choupals. In the case of wheat, Naware explains: "We do the first value addition by offering branded atta, the second value addition is through biscuits, and the third is pastas." And points out that it would look at similar verticals for sugar (going up to confectioneries and chocolates) once it can be freely traded. At the other end the e-Choupal has become an alternative distribution channel for ITC products. About 10-15 per cent salt volumes are sold through this chain; so are 5 per cent of the biscuits and confectionery items. And the numbers will grow once more Choupal Sagars get going.

The other key element ITC is leveraging for the foods business is its tobacco distribution chain. It has over 1.5 million tobacco retailers across the country, larger than Unilever's distribution chain of over 1 million, virtually neutralising the fact that it is a latecomer in the foods game. That's not to say it hasn't had to create a separate distribution system to sell Aashirwad atta and other FMCG products through kinara stores (3,50,000 outlets). But biscuits and confectioneries are perfect complementary products that can be sold through the tobacco chain. Currently, as much as half the tobacco retailers carry confectionery and about 300,000 stock its biscuits. And as much as 40 per cent of the tobacco retailers are already stacking FMCG products other than just tobacco. But perhaps the most important factor that has helped ITC sustain its foods business is its healthy financials backed by attractive tobacco margins that can absorb the pressure of losses in the FMCG business. Says Mohan Krishnaswamy of ABN Amro, who tracks the company: "ITC is leveraging the strength of its cigarette business and does not face any immediate pressure of returns, which is not the case with the multinational food companies. So, it can build scale and wait for 2-3 years to build a viable business." Analysts point out that operating margins for ITC are around 35 per cent as compared to 15 per cent for Hindustan Lever and 20 per cent for Nestle India. This despite the fact that in ITC's non-cigarette FMCG business (which primarily includes foods) margins are negative (minus 35 per cent), so it resulted in losses of over Rs 190 crore (Rs 1.9 billion) last year -- but ITC has the strength to absorb the losses without affecting its bottomlines. Unlike ITC, analysts say companies like HLL, which are trying to get in line with their international goals, are under pressure because they are concentrating on power brands and improvements in margins. HLL's sales of processed foods have actually come down and ice-cream sales have grown only marginally in the six months ending June this year over last year. Clearly, part of the foods strategy is prompted by ITC's attempt to reduce its dependence on tobacco, which constitutes over 87 per cent of its operating profits and over 71 per cent of its turnover. But without excise (because excise duty on cigarettes is high it distorts the turnover in their favour) cigarettes contribute for only 55 per cent of the turnover. To that extent, the non-cigarette FMCG business (at 5 per cent per cent of the company's turnover) might look small, but its contribution to turnover has already surpassed the company's hospitality business and is closing the gap with its paper business. And without taking excise into consideration (excise on food items is very low) its contribution to turnover is already a healthy10 per cent.

Also, the FMCG business is growing much faster than others: FMCG revenues in the first quarter were up 90 per cent compared to hotel growth of only 36 per cent and paper of 22 per cent. Of course, the agri-business grew handsomely by 64 per cent and is the second-largest revenue earner after tobacco. Not everything's hunky-dory though. Losses in ITC's FMCG business went up in the first quarter this year from Rs 39 crore (Rs 390 million) to Rs 54 crore (Rs 540 million), even though turnover went up by 90 per cent. A Merill Lynch report on the company cautions: "We are a little disappointed by higher losses in the FMCG business on a yo-y basis." It earmarks two risks: "Cigarette demand may slow down and FMCG losses may exceed expectations." FMCG analyst Kunal Motishaw is monitorial too: "ITC has the potential to become the number one foods player, but food is not its core competency, hence it will be a tough task. "Its strategy is totally different from that of HLL, Nestle and Britannia. ITC offers its distributors higher margins (ITC says it offers competitive margins) and also its products are more competitively priced as compared to its competitors, all of which has resulted in it cornering an over 10 per cent market share in a short span of time." HLL and Britannia have predictably declined to comment on their rival's strategy, but another Mumbai [ Images ] analyst says: "ITC has no existing products so it has to first develop them, which might take them longer. The company right now is very clear about focussing on market share and not profitability." But that isn't likely to put a brake to ITC's foodie ambitions. It has identified its immediate task to expand its reach into more cities and towns, to garner more retailers. The target is to reach 1.2 million retailers (from 8,00,000) in the next two years and to ensure they stack all ITC products. More importantly, it is playing up product differentiation to catch the eye of the consumer. In the overcrowded biscuit category, for instance, ITC has introduced the popular Marie biscuit in an orange flavour. Customers used to the salty crackers of Parle's Monaco are being offered an alternative flavoured with chilli flakes. In confectionery, ITC again changed the rules of the game by introducing flavoured mints in orange and lemon for Mint-O, and as much as 50 per cent of the mint volumes now come from this category. That apart, it also introduced a format of six rolls (instead of 12) priced at Rs 2, which fits in well in cigarettes stores across the country. Buoyed with the brand's success, it has now extended the brand with the launch of cough lozenges and in a short three months, has already grabbed a 15 per cent share of the market. As for the ready-to-eat food market, ITC has created two distinct segments -- the upper end catered through the Kitchens of India brand (based on recipes from its restaurants in Welcomgroup hotels) and the mid-market through the Aashirwad series. ITC executives admit that this is a small market {total size: Rs 80 crore (Rs 800 million)} but it's growing at 35 per cent per annum. And even though a large number of players are packing meals into packets, Aashirwad is spreading the banquet across 15,000 retail stores, while Kitchens of India is available at 7,000 outlets.

Branded foods isn't likely to be a simple market to crack. But if the record up to now is any indication, it might suggest that ITC Foods has been able to understand the culinary palate of Indians much better than many of its competitors. Tobacco company, did anyone say?

Article 2

Anyone who has stayed at the swanky, 16-acre spread of the ITC Sonar Bangla in Kolkata [ Images ] will tell you that the
energy requirements of the luxury hotel must be staggeringly high.

Even so, when it opened on introductory tariffs and low occupancies, only to be served up a whopping electricity bill of Rs 7 crore (Rs 70 million) in the first year, the management knew it would have to look for alternative solutions. Immediately, consultants were hired on the simple mandate: reduce energy consumption. But that would have meant changing and revamping ducting and fittings while guests were staying at the hotel. Instead, the pumps were retrofitted; the electric heaters were replaced by solar heaters; power-guzzling boilers were removed and condensed steam used to generate hot water; and variable frequency valves were used in the fans (needed for the air-conditioning), so that speeds could be adjusted, thereby eliminating energy wastage. The result has been amazing. The company's electricity bill has dropped by 20 per cent (while occupancies have gone up by three-fourths). But it's not the reduction of the electricity bill alone that has put the smile back on the face of the management team. By reducing its energy consumption, the hotel has also brought down its carbon dioxide emission levels. Is that a big deal? Apparently, yes. And that's because you can trade carbon emission reduction certificates in the marketplace just as you sell shares. Which is why ITC is now in the process of getting certification for a reduction of 3,000 tonnes of carbon dioxide emission - certificates it will use for carbon trading. And if that sounds like so much futuristic gobbledygook, explains Subhash Rustagi, executive vice-president, corporate EHS: "Under the Kyoto protocol, corporates and countries that have not met their emission targets can take credit for our carbon emission reduction by buying these certificates at a price." It's a win-win situation: other corporates, even the countries, are not penalised for their failure (though they have to pay to buy the certificates), and ITC ends up making money that, says Rustagi, "we can reinvest in our environnment programmes". At a going rate of Euro 14 (Rs 740) for each certificate of one tonne of carbon dioxide reduction, the hotel could earn Euro 40,000 (Rs 21 lakh) a year from just this one hotel. ITC expects that in the next two years, it should be able to certify about 1 million tonnes of carbon for trading. At prevailing trading rates, that would fetch it Rs 70 crore (Rs 700 million) - substantial enough, especially when ploughed back as further investment into its environment schemes.

It might not sound glamorous enough to make headlines, nor might it set the stock markets on fire just yet, but ITC (tobacco, hotels, paper, food) has charted out a quiet but ambitious move to become the only corporation on earth to achieve triple green rating - it is already water positive, and is now moving to become both carbon positive and have zero solid waste.

And the deadline to achieve this is 2007. The investment in green is inexorably linked with the lives of ITC's consumers typically, all of us who are confronted with high pollutants, water shortages, and dirty rivers overflowing with factory waste. For decades, this has been our story. Now, with corporations making a conscious effort to become green, it's interesting to study how that paradigm can be useful for the bottomline, can reinforce the brand, and also ensure the sustainability of raw material. Says Y C Deveshwar, chairman of ITC Ltd [ Get Quote ], "As a company that continuously strives to be 'Citizen First', this commitment finds expression in the company's sustainable development philosophy, which recognises the need to not only preserve but also enrich precious environmental resources, while providing a safe and healthy workplace for its employees.'' All this costs money, and ITC is pouring in substantial investment to go green, though it won't give out a consolidated figure of the spend. Nor is it quantifying those returns on its environmental investments yet. Last year, the company forked out Rs 56 crore on community development schemes, a large chunk of which went into green projects. The company is estimated to have spent around Rs 15 crore (rs 150 million) to create or restore water reservoirs across the country. Effluent treatment plants to reuse factory waste water in the paperboard and pulp units cost Rs 10 crore (Rs 100 million); and ITC's crack team estimates that every Rs 1 crore (Rs 10 million) investment on energy conservation can be recovered in a three to five year period. But if its carbon trading succeeds, this period could be far less. Recognition for its efforts are reflected in a report by the Centre for Science and Environment, which does a green rating for the paper and pulp industry. From a ranking of number eight just five years ago, it moved up to and continues to occupy the number one position since 2004. So what has ITC done to achieve these laurels? Take solid waste, for instance. Company executives churn out some impressive numbers: the group generated over 28 lakh tonnes of solid waste last year - but were able to recycle 81 per cent of that waste. By March this year, it will hit 95 per cent and, of course, by 2007 it will be a zero solid waste company. A zero solid waste company? Executives have been burning midnight oil to come up with innovative solutions. In hotels, for instance, the challenge lies in food disposal from the kitchen. And how does one deal with all the old linen and towels that pile up in the store? The findings are innovative - tying up with piggeries to utilise any food that is fit for animal consumption, and converting the rest into compost to be used as manure. The linen and towels are given away to orphanges. Leftover ghee and oil in the kitchens is transported to a soap factory to be used as raw material. The challenges were the biggest for ITC's Bhadrachalam paperboard plant, which generates the maximum solid waste. The fly ash generated from the boilers in the mill is used to make bricks - ITC has already set up three brick making plants within

100 km of the plant. And to demonstrate that the fly ash bricks are as durable as their more conventional counterparts, they have been used by the company to build its own staff colony. That, explains Rustagi, is the key challenge - to get people to use waste as raw material rather than dumping it in water or in the ground. So the lime generated as waste in the paper plant is sold to cement units, and any waste paper is converted into pulp, for reuse. But going carbon positive is a much more complicated task. ITC is adopting a two-pronged strategy of simultaneously conserving energy and opting for massive afforestration to achieve it. The roll-out seems impressive: Rustagi says that it has already undertaken plantations in 29,000 hectares of land, and hopes to hit 43,000 hectares by the end of March, which should ensure its carbon positive status. (The more ambitious plan, of course, is to cover 1 lakh hectares of land under afforestation, most of it near its paperboard plant in Andhra Pradesh.) Behind these numbers is a massive human programme in which ITC has roped in over 30,000 farmers, offering them an alternative livelihood. The company offers saplings at Rs 6-8 each to plant on their land. And it supports the farmers by offering advice on how to grow the trees, how much fertiliser they should put in, and when to reap to get the best returns. More importantly, it guarantees that it will buy back the wood after four years at the prevailing market price. Currently, a farmer with a hectare of tree plantation could earn Rs 43,000 annually from selling the wood. It is also encouraging farmers to undertake intercropping. Or, simply put, to grow other crops side by side with the trees. So, for instance, some have grown chillies. The company, again, guarantees that it will buy the crop. But company executives are grappling with some serious challenges. For one, many of the farmers have short-term cash needs (for example, a marriage in the family) and sell their trees to contractors even before they have grown to optimum size. ITC is looking at either roping in banks or going ahead on its own to provide loans to such farmers to tide over such problems. And two, despite the support they give the farmers, they are under no contractual obligation to sell the wood to the company. Laments Rustagi: "We don't have any contract with the farmers, so while we do a lot of the work, other contractors and other competing paper mills come in and buy their wood by paying a few rupees more and take advantage of our efforts." Even so, the afforestation programme makes sound business sense. It ensures ITC a regular supply of quality wood, the key raw material for making paper - at least 80 per cent of the wood from the trees planted by these farmers is bought by the company. And company executives say that with 50,000 hectares under plantation, it is more than enough to meet most of the needs of the paperboard plant. ITC might even be willing to pay a higher price to farmers who are near the paper mill since it saves them expensive transportation costs. Impressive as all this sounds, there are still cynics who question ITC's green credentials, essentially on three counts. First, they question the company's claim that its paper mill has reached global levels of energy efficiency.

Says Chandra Bhushan, associate director, industry and environment, Centre for Science and Environment (CSE), "The energy consumption of global paper companies of a similar kind per tonne of paper is virtually half of that in ITC." But he concedes that its consumption "is much lower than the average Indian paper mill (by around 25 per cent)". ITC, in its defence, points out that benchmarking numbers is based on PriceWaterhouse Cooper's international benchmarking, and that Indian paper units should not be compared with international plants because of technological differences. Second, decry cynics, is ITC's claim of becoming water efficient. CSE contends that the per tonne usage of water in the paper plant is at least 30-40 per cent higher than the global average, though it is also true that it is much lower than most other competing paper mills in India [ Images ]. Third (and the most serious attack) is on its claim of becoming carbon positive. CSE says that ITC has overstated the credit on the carbon it claims to have reduced through the afforestation programe on account of the wrong methodology. As the trees are cut in four-five year cycles, the carbon retained is again sent into the atmosphere either by burning of the wood or through paper waste. Says CSE boss Sunita Narain: "We appreciate that ITC has a vision on environment and could be a role model for other companies, but there is no reason for them to misrepresent facts to show that they are carbon positive, or that they have attained global standards in energy consumption." ITC insists it has followed international guidelines, and taken a year to year calculation while crediting carbon, and admits there are other ways to do it too. But then, rather than carry out its afforestation programme, ITC could have imported its pulp. If anything, the criticism has sharpened its need to stay water positive. In all its hotels, high-tech water treatment plants (that cost Rs 40 lakh each) ensure that the water used in the rooms, the kitchen and by the laundry department is recycled back for use in the hotel gardens, in the cooling towers for the A-Cs, and even for flushing toilets. In what is virtually uncharted territory in India, even the muted criticism sounds loud. While there may be a point in what the critics say (though in the whole, they're agreed that ITC's on to a good thing), a company that's going out on all limbs to ensure that it is giving back to the environment what it takes from it, can only be held up in extremely high esteem. For some years now the message has been clear: investing to become green is not just good for society but, increasingly, a business imperative in a new world. ITC at least has put its words where its mouth is. The global green index Carbon positive? Zero solid waste? Water positive? If you're confused, here's our guide for dummies on what makes ITC such a winner:

Zero solid waste: A company that achieves this is either able to utilise its entire waste as raw material for some other industry, or recycle it for use again in the factory.

Water positive: This implies that an organisation generates more fresh water through various water harvesting methods than it consumes in its factories. Carbon positive: Implies a company, through afforestation programmes and efficient use of energy, eliminates more carbon dioxide from the atmosphere than the sum of the carbon emitted by the company through areas like the generation of electricity, running AC plants and so on.