RPG Group vice chairman Anant Goenka believes both his flagship companies – KEC and Ceat are poised for strong growth. KEC Ltd, the group’s largest revenue earner, is flooded with T&D orders, given the rising demand for power from data centres. Ceat, he believes, especially after the Camso acquisition is completed, is likely to show a 30-40% higher volume without any capex, besides taking a plunge into premium categories and newer geographies.
Speaking on Moneycontrol’s series Latha & The Leaders, the young vice-chairman revealed his huge ambitions for the group. He is hoping KEC will get counted very soon as a close second to L&T, while Ceat will become one of the first global brands to emerge out of India.
He also is excited about the nuanced way in which Zensar is navigating the demand for AI related software, and the innumerable API-manufacturing opportunities for RPG Life, the group pharma company
But let’s start with KEC. The world is clearly under supplied with power, he argues, given the sudden rise in demand from AI and data centres. “At a macro level, if you look, there is going to be a huge shortage of electricity around the world. Two trends are happening. One is AI, which is leading to many more data centres, which are huge power guzzlers. So there is going to be demand for many more connections and electricity connections to these places.
Second is there is a shift towards renewable energy, where again, grids are getting completely modified. In fact, some of the leading technologists have said that there's going to be a shortage of, the bottleneck for AI is going to be the transmission grid. So to that extent, it gives us confidence that there's going to be a fair amount of investment. And anyone in the electrical space is going to see great demand. We are lucky that we are into cables. We have power transmission and distribution….to that extent, there's a fair amount of tailwinds in this space.”
Will the fall in oil prices reduce construction orders from West Asia, I asked him. “We started this year thinking we will get a bulk of orders from global markets, but domestic capex for power and distribution has so been huge,” he said . “KEC’s revenue have been growing at 15% and we are like to continue at least at that pace,” he said .
Coming to Ceat, he pointed out that demand for new tyres has been growing at 6-7%, that is in line with the country's GDP growth. Yes, demand has been impacted by the small car segment. In sync with what Maruti Suzuki's chairman RC Bhargava told us in this series, Goenka said the car parts to meet the Euro-6 safety measures and emission rules have pushed the cost of the small car beyond the reach of a typical family that wants to migrate from motorcycles to a car.
But he believes the acquisition of the brand Camso from the Michelin stable can make a big difference to the tyre maker. The approval processes are still underway, Goenka said, and Ceat would get involved thereafter.
Camso is a French brand that is manufactured in Sri Lanka and sells in Europe and the US. The primary attraction for Ceat is that it is a premium brand.
“Second is access to leading customers such as JCB, Caterpillar and other leading construction companies. Third is we can use a lot of Ceat products now in the Camso brand and premiumise, have a two-layer strategy over the long term. Get Camso to sell many more products and get Ceat to also diversify into this space. We've also been very excited about the off-highway tyre space," he added.
“That's a much higher margin business than passenger car, truck, et cetera. So as we shift our product mix towards off-highway tyres, I think our margin profile will also improve.”
Goenka expects Camso to add about Rs 1,500-2,000 crore to Ceat's current revenues of Rs 12,000 crore. “And over time, that potential is higher because the capacity utilisation of that plant today is at about 50-60%. So the upside without any investment is another 30-40% ,” he said. But more important than the synergies, is Goenka’s hope that Ceat will one day be one of the global brands to emerge out of India.
On Zensar, Goenka’s hopes are currently modest given the global headwinds which he says may take two quarters to settle down. But he sees AI as a big opportunity : “It's a very big part of our offerings,” he said. “Now with nearly every offering, we embed AI as a use case or as a solution for our customers. And in various areas we are building our own capability. We are putting it as stories and opportunities for our clients to be more effective and using AI in our own systems. “ he said.
For RPG Life too he has huge ambitions. “RPG Life Sciences has been an excellent story for us in the last six, seven years," he said. Our margins were below industry levels at about 12-3%. That has now gone up to about 23, 24% margins”.
Going forward, the company is looking at two or three areas. “One is we have great brands within RPG Life Sciences such as Naprocin, Lomotil, et cetera. Here we are looking at brand extensions and converting some of these brands into much larger brand sizes, crossing a hundred crore kind of sales mark in some of these brands. Second is entry into new speciality therapies, biosimilars, and chronic therapies... And the bigger shift we want to make is that we are historically primarily in domestic formulations. We want to move more and more towards API.”
The expansion strategy will include M&As in a big way he said. He is also banking on global demand for APIs, as more countries look to diversify from China which is now the only supplier for several APis.
A couple of years back when he took over as vice-chairman, Goenka had expressed his goal of doubling the group’s market cap in 3-5 years. He is certainly working with a plan for every one of his four group companies.
Watch the full interview here
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