DSIJ Mindshare

Godrej Group: Inspiring Better Living

The Godrej Group has historically been a touchstone for quality and consumer focus in the Indian markets, and has enjoyed a strong market reach. Adi Godrej, Chairman, Godrej Group in a conversation with Prasanna Bidkar, tells us more about what makes the group stand head and shoulders above its peers and about its plans ahead.

  • The Godrej Group has about 500 million consumers in India who use one or the other of our products everyday. Whether they are using a Godrej soap or opening a Godrej refrigerator door, we have more consumers than any other Indian group. There are larger Indian groups, but they mainly have a B2B presence and so, they don’t have as many as consumers using their products as ours. That shows very strong brand strength for us, and we want to develop that.
  • We have a 3x3 strategy and are very clear on this. Three products groups where we very strong in India and where we have very good technology are household products, hair products and personal wash. We wish to grow in these three categories in the three continents in the developing world, i.e. Asia, Africa and South America.

While there are so many companies operating in similar businesses, a similar economy and similar platform, not all have created value for the shareholders...

In fact, I would say that quite a few companies have created value in India. But this is always going to be there – not every company will be successful and not every company will create value. That happens all over the world. In some companies, value creation becomes negative.

Your company has been in the industry for such a long time. How do you think the company and the overall economy have created value post and pre-liberalisation?

Pre-liberalisation, the Indian economy was in a very poor condition. The growth rates were very low, and polices were negative. Most of the big value added or value creation in corporate India has been post liberalisation, or I would say post 1991. Post 1991, things have improved considerably, and this has helped the company.

How much do you think the reforms process has panned out in the last five years?

I think we had some good polices in 2009-10 and 2010-2011. We had fiscal and monetary stimulus, the economy also did quite well, and there was 8.4 per cent GDP growth in both these years. But in approximately a year’s time before Chidambaram came in as FM, there was a very little reform and very few good policy announcements.

But in the last six months, since Chidambaram has taken over the Finance portfolio, there has been good movement on the reforms front and on policy formation. I thought the pronouncements in this budget were quite good and the emphasis has been to try and get the Good and Services Tax (GST) legislation in place. That one legislation will add two percentage points to our GDP growth. So, I expect that there will be momentum from now onwards.

How far have these policy reforms in terms of rural upliftment helped GCPL on a micro basis?

Rural expenditure and the fact that rural incomes have increased has helped GCPL, and our sales growth in rural India has been good. Even in this financial year, we expect about 30 per cent plus growth in our rural business. So, clearly the improvement in the rural economy has helped us.
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The big the advantage is that 20 years ago, most people in the rural areas were just able to keep body and soul together. Now, they have considerable discretionary income, and this discretionary income is rising quite fast. This is leading to higher consumption, a wider variety of goods being bought, and GCPL has been a beneficiary of this.

As the market has grown, competition has increased. How has GCPL managed to tackle this?

I think we have done well when it comes to competition. If you look at the last 10-12 years, our market cap increase or our share price increase has been about the highest among the FMCG companies in the world. Even in the last year, our share price has increased quite well and we continue to do well. We expect that this financial year will be good for us and the next one too.

We have expanded a lot internationally in the last few years. There have been a lot of international acquisitions. Now, around 40 per cent of our sales turnover comes from outside India.

As you said, you have entered the international markets and India is also a domestic consumption story. Where do you see the major growth coming in from?

We have a 3x3 strategy and are very clear on this. Three products groups where we very strong in India and where we have very good technology are household products (especially household insecticides), hair products (especially hair colour) and personal wash. We wish to grow in these three categories in the three continents in the developing world, i.e. Asia, Africa and South America.

Since when have you have implemented this strategy?

This 3x3 policy was brought in about four years ago and we have been growing very strongly. We also have another objective that we call the 10x10 strategy. We want to be 10 times our present size in ten years’ time, which is equivalent to 26 per cent CAGR for the next 10 years. In the last two or three years, we have grown ahead of that and our growth has been about 30 per cent.

If we consider the international markets and the domestic market, has the strategy been different?

No, our strategy has been to be very innovation-oriented, with new products, new ideas and a very strong people orientation. One of our major strategies is that we use EVA (Economic Value Added), which is the profit after the cost of capital is deducted. We use EVA as one of our major financial metrics, and have a major performance-linked variable remuneration for a large number of our employees based on EVA improvements that align employee value creation with shareholder value creation very well.

Going forward, what do you think the major growth driving factors for GCPL are going to be?

The major growth factors will be strong innovation, an emphasis on acquisitions and an emphasis on advertising and cost containment. We have strong processes for containing costs.

So, there has been a special focus on cost containment in the last few years?

Yes, in fact we have a constant emphasis on cost containment.
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Have you seen the results on the bottomline front?

Yes, in fact that is one of the reasons why our bottomline has done well and our share prices have increased.

Coming to advertisements, Godrej has always been innovative on that front. How do you see the brand changing over the next few years?

We have always had a strong emphasis on brand and advertising. The Godrej Group has about 500 million consumers in India who use one or the other of our products everyday. Whether they are using a Godrej soap or opening a Godrej refrigerator door, we have more consumers than any other Indian group. There are larger Indian groups like Reliance or Tata, but they mainly have a B2B presence and so, they don’t have as many as consumers using their products as ours. If you take a firm like Bharti, which is the largest telecom company in India, even they have around 200 million users while we have 500 million users. That shows very strong brand strength for us, and we want to develop that.

Do you feel that there is further scope for rural penetration ahead too?

That depends upon what you mean by rural penetration. We are present in all parts of the country, so there are no geographical areas as such to go to or even new districts to reach out to. Even if you go trekking in Ladakh, you will find our products in the shops there. By rural penetration, if you mean whether we are available everywhere, that is already there.

But within those geographical areas, we would like to have stronger coverage. If there are about 8.5 million outlets in India today, our products are found in about 3.5-4 million of them. We want that number to keep rising. Our products are present in almost all bigger outlets, but there are some smaller outlets in remote areas where our products may not be available. So, our aim is to see that more of our products are available in more retail outlets. If you mean penetration in that manner, we are focussing on that.

Are there any major capex plans planned for GCPL?

No major plans. First of all, GCPL does not require much capex spend as we are not a capital intensive business. Secondly, we are operating on negative working capital. So, all our capex is financed by negative working capital and we do not need to raise capital for expansion. We only need to raise capital for acquisitions.

Also, our capex requirement is not lumpy. We are constantly adding to our capacities, adding new lines, renovating them and improving them. Every year we are undertaking some capex.

You mentioned about acquisitions. Are there any major acquisitions that the company has lined up?

We cannot talk about that, because when an acquisition is made we need to first inform the stock exchange. But I can tell you that we are constantly looking at new acquisitions. In this fiscal also, we have already announced quite a few acquisitions, including a hair colour company in Chile and Phase II acquisition of the Darling Group in Africa. Phase III plans for the Darling Group will also happen, and we are looking for other acquisitions too. We will announce those when they are completed, but we first have to inform the exchanges.

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