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“We want to double the shareholder’s value in the next four years.” - Views on News from Equitymaster
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  • Aug 10, 2000

    “We want to double the shareholder’s value in the next four years.”

    A rank holder from the Institute of Chartered Accountants of India Mr. Girish Bhat is a member of the Chartered Institute of Management Accountants, London as well as Institute of Cost Accountants of India.

    Mr. Bhat has been a Cadbury man throughout his career. He started his career in the company as an Accounts Officer in 1982 and rose through the ranks to become General Manager–Finance. In 1995 he was deputed to Cadbury Beverages International as their Finance Director overseeing India & Africa. He also oversaw as Finance Director, Cadbury’s operations in the Middle East, Holland, Switzerland and Western Europe. He has been Director Finance, Cadbury India since June 1999.

    In an interview with Equitymaster.com Mr. Bhat spoke of Cadbury’s strategy in each of its lines of operations, the outlook on cocoa prices and the management’s vision for the company five years hence.

    EQM: Over the past five years it has been chocolates, which have contributed to your volume growth rather than sugar confectionery and food drinks. Do you anticipate this trend to continue in the foreseeable future?

    Mr Bhat: Our focus is on all the segments wherever the growth (wherever we are present as market leader) is. Chocolate is our key business since it constitutes most of our revenues. Worldwide we are strong in the sugar confectionery segment. So we are working on the growth models for this segment also. Our focus has been always on the value added sugar confectionery and products and not as the commodity product. The ‘Gollum’ jelly product has been successful in the market but for the ‘Frutus’ the consumer does not perceive the product as the value for money product. So at present, we are in the process of changing the value proposition of that product.

    EQM: The recent excise hike has put paid to the profitability of the sugar boiled confectionery profits. What is the outlook on that business?

    Mr Bhat: All the sugar confectionery manufacturers were impacted to a certain extent by the hike in the excise duty rates. But impact for us is less because it forms very small part of our portfolio. The impact was comparatively less than the other sugar confectionery manufacturers. We were expecting the excise duty structure to change. So when we had launched our product, we had done our pricing (for the product) accordingly. So the duty hike is already factored in the price of both our products ‘Frutus’ and ‘Gollum’.

    EQM: Could you give us some outlook on cocoa prices. They have gone down by almost 50% over the last 18 months. How long do you expect this trend to sustain?

    Mr Bhat: One has to see the quality of cocoa we are buying. The prices, which are given, are those of Malaysian and Indonesian cocoa. But we buy the West African (Ghana) beans at the premium price. There the prices have come down by around 30%. The impact of this will be reflected from second quarter onwards.

    EQM: What is the company strategy in food drink business?

    Mr Bhat: The food drink market is basically a slow growth market, growing at the rate of 3-4% per annum. At present, the brown drinks in the market are growing at the cost of white drinks. Our strategy has to be in terms of growing our share of market for which we have to grow faster than the market growth. We are interested in any acquisition the value for which is perceived to be right and adds value to our existing business.

    EQM: You spoke about the lack of a level playing field for domestic manufacturer vis-à-vis imports at the recent analysts meet. This pertained to the fact the Packaged Commodities Order did not apply to imports and the Foods Regulations abroad did not confirm to the Indian Food Laws. Could you kindly elaborate on how the provisions discriminate against domestic companies?

    Mr Bhat: The problem is that the regulations are not strictly enforced. The question is that every product that the Indian producer’s manufacture has to have the MRP price printed. And the excise duty is imposed on the MRP. But the same rule doesn’t apply when you pay custom duty and you import the product. So what happens is that you pay import duty not on printed value, you pay import duty on the value which is being quoted on the invoice value. And the value, which is quoted on the invoice price, may possibly be the variable cost also.

    Let us say ‘Mars’ they may invoice it at a variable cost. Because for them they are testing the market. So it doesn’t matters for them because they are not manufacturing it. So the invoicing of the product differs depending upon the manufacturers’ view of the Indian market. The second problem is that a lot of these products (like any other consumer product) are available in the grey market too. And you know that there is no control on the grey market.

    As regards rules and regulations regarding the Packaged Commodities Act, there are many products in the market, which despite having passed their expiry date, are still being sold in the market. So our question is that, when we are talking of level playing field it is not from the commercial point of view. The question is whether the legislation, which is imposed on Indian products is also imposed on the imported product. It is easy to pin point that the Indian manufacturers have violated the law. But how do you enforce the laws for the imported products? Having said that, we are not too much worried about these problems. You have to offer superior products to your consumers and overcome this problem.

    EQM: Where do you see Cadbury five years down the line?

    Mr Bhat: We want to double the shareholder’s value in the next four years. This is our objective and we always operate on that basis and we measure ourselves against this benchmark. The second thing is the potential in India of bringing more consumers in to your bracket is quite big. Today we are covering around 60 m people. I feel as the purchasing power of the consumer increases, we will have to manage our infrastructure and development in line with that. If that is in place we will be in a position to bring more consumers in our fold by increasing the overall consumption of chocolates in the country. The third aspect of our strategy is to become the lowest cost manufacturer in the world.

    EQM: What in your view would be the most important challenge, your company would face in achieving that vision?

    Mr Bhat: I don’t visualise any problems as long as the economy remains stable. With the growth in the GDP (even if we grow by 6%–7%), the purchasing power of the consumer is expected to go up. So the underlying factor is the performance of the economy itself over the next 5 years.

    EQM: Any personalities that have influenced you and a word on your favourite books?

    Mr Bhat: I am a fan of Jack Welch and I have read his books.



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