In an interview to CNBC-TV18's Priya Sheth, Adi Godrej, Chairman of the Godrej Group spoke about his outlook and impact of GST rollout for the company and Indian economy.
The interview takes place after the veteran industrialist today handed over the baton of Godrej Group flagship firm Godrej Consumer Products to his daughter Nisaba.
Edited excerpts.
Q: It has been several years. It was 1963 when you first stepped into the family business. Run us through how the journey has been and what has been the key business highlights in the transformation of this close to Rs 30,000 crore behemoth.
A: We have been in business now for 120 years and I joined the group in 1963 when I finished my education in the US and we have been growing quite consistently since then. Of course, the early years, generally, business in India was difficult because there was controlled economy, expansion was difficult because government wanted you to take permission for almost everything you did, etc. But since 1991, 0over the last 25 years, things have been considerably better. Indian economy has grown much better and our growth has been also much faster since 1991 than it was until 1991.
Q: You set an ambitious growth roadmap for the Godrej Group. You have mentioned the 10 by 10 strategy. We are looking at growing revenue by tenfold. I just wanted to understand, are we still on track, what is the plan out there?
A: When we first decided on the 10 by 10 goal, we did well over 3-4 years. Then the Indian economy as you know, growth has slowed down a little bit in the last 2-3 years, primarily because we had two bad monsoons in a row and otherwise also, global growth has slowed down. So, we are off track over the last 2-3 years. But GST coming in, the Indian economy will do exceedingly well, so we will be back on track after that.
Q: The compounded growth rate that you were expecting at that point in time was about 26 percent.
A: That is what 10 by 10 adds up to.
Q: So, I just wanted to understand how much short are we of that target? Is there a revenue number that you have in mind that the Godrej Group needs to reach by 2020?
A: No, we do not have an exact number. The 10 by 10 is a goal we want to set ourselves. We do not want to do it in any manner, whatsoever. It has to be done in a strategic manner. And of course, part of it has to be achieved by acquisitions. We do not think organically we can grow at 26 percent. So, acquisitions also must be strategic, must be accretive and it is better not to achieve the goal than to do in a non-strategic manner.
Q: As you mentioned, the economy has slowed down in the middle at least. Can we expect this target to be pushed by a few years, maybe by 2025?
A: It could be. As I said, whether we grow 10 by 10 or eight times in 10 years is not so critical. This was just a goal we can focus on and it also would enable us to decide how much we want it to grow inorganically by acquisitions and we have grown quite a lot by acquisitions also. There have been some years where our growth rate has been over 30 percent.
Q: You mentioned acquisitions and that is one thing I wanted to speak about. The Godrej Group has increased acquisitions across their businesses. What according to you, how big a growth driver will be acquisitions going ahead? If you can break this up in sort of numbers?
A: Organic growth can be around 10-15 percent. The rest of it has to come from acquisitions and of course, as I said, unless we have opportunities for strategic acquisitions we just will not go and buy anything and everything.
Q: In which of your businesses do you foresee a bulk of acquisitions coming through and how large do you think these acquisitions would be?
A: Our largest business is Godrej Consumer Products. It is also a very fast growing business in our group, not the fastest growing, but one of the faster growing businesses in our group. That is where we see a lot of scope for acquisitions, especially in the developing world.
Q: Is there a size of acquisitions, is there a war chest that you have kept aside for acquisitions?
A: No, ours is not a very capital intensive business, so we do not plan in terms of how much capital we are going to invest or how much are we going to set aside for acquisitions. As needed, we raise it. But, acquisitions of course tend to be quite expensive and we have recently grown also by acquisitions in Godrej Agrovet. We met two substantial acquisitions recently which have both done very well.
Q: Demonetisation is one thing that the industry has been reeling under. I understand right now we are in the remonetisation phase, but is this a reality of single growth that we see in businesses going ahead?
A: Digital growth is quite good in India. It is catching on. Demonetisation has been almost fully restored in terms of remonetisation as you put it and growth will be good going forward. One of the big factors for growth in India will be goods and services tax (GST) being implemented.
Q: Speaking about one of the most important businesses that is Godrej Consumer, we have seen some sort of predictions of normal monsoon going ahead but over the last few years we have seen cyclical uptick in terms of the rural economy not shaping up, also demonetisation. Do you think that could possibly slowdown growth or do you think growth is back on track there?
A: I think it is back on track. We have just announced our results for Q4 in Godrej Consumer and we have done very well. I think GST will accelerate growth.
Q: Ayurveda is a category that everyone is speaking about and being present in this space, I wanted to understand is this a category that you are exploring in a big way, can we expect more Ayurveda offerings considering there is a whole natural wave that is sweeping the country at this point?
A: We don't specialise in ayurvedic products, so it is unlikely that we will pay a lot of attention to ayurvedic products. We will concentrate on the categories we are very strong in. We are very strong in household insecticides, we are very strong in hair colours, soaps is a good business for us. Globally we are in other categories also especially hair care in Africa. We are the largest company in the world for hair care for women of African origin. We have a strong business in Africa and a strong business in the US.
Q: With regards to the overall plans for acquisition at GCPL, we have seen international acquisitions, we have seen you increasing stakes in several of your existing companies. Do you see that as a plan for growth as far as GCPL is concerned?
A: Acquisitions would be a big part of GCPLs growth. It has been already. Now companies we have acquired have started growing organically also. So, we expect that to be a strong growth factor for GCPL in the future.
Q: Do you see volatility in international markets as a matter of concern for GCPL?
A: Yes a little bit especially since currencies have been fluctuating a lot particularly in Africa. So, it is a matter of concern but we are taking it in our stride and we have done very well despite these challenges.
Q: What do you think you would like to put in place as barriers to shield the business from those kind of challenges, is there some strategy that you have thought out at Godrej?
A: We have to pay a lot of attention to two things - brand building and we have different strong brands in different geographies because we have acquired companies, we have acquired very strong brands in these geographies,
Second is innovation. Innovation is extremely important. In India we feel there is tremendous scope in growth if we are able to make consumer products affordable.
There are only three package branded consumer goods which are fully penetrated in every household usage - soaps, detergents and matchsticks and everything else people want to consume more of but it must be made more affordable. So, we are spending a lot of time on innovation to make things more affordable so that more Indian consumers can buy a variety of products.
Q: Prices have been on the upswing especially for raw materials. Do you think that could perhaps be a challenge? Would you look at passing on price cuts to consumers at this point in time?
A: It works both ways. Commodity prices did go down a lot couple of years ago then in between they rose again. Now again you see crude oil prices going down a bit. So, overall we feel commodity prices will be well under control and we will have to live with commodity prices. We can't ordain how they will move or we can't decide how they will move. However within that structure we have to see how best we can innovate, how best we can add to our brand values and how best we can grow.
Q: GST as you mentioned will perhaps be a game changer going ahead. At the Godrej Group what is the kind of internal planning that you have been doing and what are the kind of cost savings that we can expect going forward?
A: That depends upon what the final rates come out to be. Government would do very well by the economy if the rates are reasonably low because their collections will rise quite considerably because evasion of taxes would become very difficult once GST is in place. So, government revenues will rise. So, lower rates of taxes could lead to very sharp growth rates in the country, could lead to several other benefits and great economic wellbeing. We will hears about the new rates within a week or ten days. So, I do hope we have reasonable rates which will add more. If the rates are not on the lower side I think still it will have benefit on the economy but less than if the rates are low.
Q: Is there some ballpark in terms of what is the kind of approximate cost savings? I am sure there is come back end calculation that you have worked on?
A: There are cost savings in logistics, there are cost savings in less overhead etc with GST but the main cost savings if at all could be in the rates of taxes being lower.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
