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"We are clearly committed to strong growth, both organically…and through acquisitions." - Views on News from Equitymaster
 
 
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  • Dec 22, 2003

    "We are clearly committed to strong growth, both organically…and through acquisitions."

    Adi Godrej – the name needs no introduction. As the man in charge of the Godrej Group, he is quite well known. Under him, Godrej Consumer Products has seen a marked improvement both in performance and market cap in the last couple of years.

    In an interview with Equitymaster, Mr. Godrej talked about the strategy for India Inc., the FMCG sector, Godrej Group's journey so far and its prospects going forward.

    EQTM: In recent times, India seems to have notched up a scale or two on the global antennae and is emerging as a preferred destination for doing business. What is your view on this new found re-rating - whether it is sustainable or is it just a flash in the pan? What should be India Inc.'s strategy to grow big in the global scheme of things?

    Mr. Godrej: I do not think that it is a flash in the pan at all. I think the Indian economy is maturing very rapidly. Due to the past 12 years of liberalisation and globalisation, the Indian economy is becoming much more competitive, and is looking good because of the excellent foreign exchange reserves now, and also because of excellent cash flows in many corporates. It is time the Indian economy becomes global. And this is signified by the fact that many Indian groups and companies are looking to expand abroad, both organically and through acquisitions. I think that will continue. The sense of confidence is very strong and productivity is improving very rapidly in India. This would continue and is not a flash in the pan.

    EQTM: 'Reforms' – Both the policymakers as well as India Inc. seem to have caught on this theme. In your view, is India on the right path to reforms? What are the key ingredients that you think are missing?

    Mr. Godrej: If you ask me the question whether reforms are in the right direction, I would say, 'Yes'. But, I think the pace of reforms is too slow. Reforms are adding a lot of value to the Indian economy, and should be undertaken faster. I think the concerns about how it affects groups or individual sections of society seem overblown. And because of political difficulties, unfortunately the reforms are not going as fast as they should.

    EQTM: How do you envision Corporate India in 2010 and what role do you see the Godrej Group charting out for itself by that time? What will be the Group's core focus areas going forward?

    Mr. Godrej: In 10 years time, India will be a much bigger global player. Many Indian companies will be multinationals by then. By then, we would be a semi-developed country, however not yet fully developed. Poverty levels will be much less. I expect there will be no illiteracy among young Indians by then. So, India will be a changed country in ten years time. As far as the Godrej Group is concerned, we are sticking to the areas where we are strong in – consumer products, consumer durables. And our new area of concentration is services. So we are developing our property business, we are developing our BPO business, and we are developing our IT and software services business.

    EQTM: What will be the defining trends in the FMCG sector over the next 5-10 years?

    Mr. Godrej: Well, the last two or three years have been bad for the FMCG sector. There has been a deceleration in the growth process mainly because of the very poor rural economy over the last two or three years. I think with a good monsoon this year that will reverse and the FMCG sector will again grow at low double-digit rates for the next few years.

    EQTM: How long will the FMCG sector be dependent on monsoons?

    Mr. Godrej: No, it is not dependent on the monsoons. But we must remember that last year, we had one of the worst monsoons over the last thirty years. Despite that, the economy grew by around 4%-5%. And the FMCG sector also grew a little bit. So, I think we are not 'dependent' on the monsoons. But the fact is that 25% of our economy is still agricultural, and 65%-70% of our people are still in the rural areas where agricultural growth is extremely important for their livelihood. And so, income in rural India would be affected by monsoons to a certain extent. But twenty years ago, if we had such a bad monsoon as last year, it would have been catastrophic. Today, as we are not as dependent on the monsoons, despite a bad last year, the year proved to be not very bad for the economy. And remember that weather conditions affect all economies. No economy is totally isolated from the forces of nature.

    EQTM: What is your vision for Godrej Consumer over the next decade? What will be your strategy to achieve it?

    Mr. Godrej: We are clearly committed to strong growth, both organically through new product development and growing our brands, and acquisitions. Over the next few years, we expect strong growth as the FMCG sector is expected to recover and we will look through growing by acquisitions because we are a very cash-rich company. We generate a tremendous amount of cash, which can be used for acquisitions. We are one of the highest 'return on capital employed' and 'return on net worth' companies in the country. And that puts us on a strong path for investment into future growth.

    EQTM: Godrej had recently brought the 'Snuggies' brand. What other product areas will Godrej Consumer be interested in taking an entry through the inorganic route?

    Mr. Godrej: We look at Godrej Consumer operating in the areas of personal care and household care. In those areas, we would look at any good brand. These are very broad areas and we think there could be considerable opportunities to grow both organically and through acquisitions in these areas.

    EQTM: In the last few months, the Godrej Group has come out with offerings in branded processed food like Noble House Tea as well as Real Good Chicken. Don't you think that this branded initiative could have been clubbed with Godrej Consumer's FMCG folio? Both could have had synergies.

    Mr. Godrej: We have several companies in the FMCG sector within the Group, and each one concentrates on a certain area. We have our household insecticide business called Godrej Sara Lee where we are the leaders. Godrej Consumer Products is concentrating only on household and personal care products, not on the food sector, and is unlikely to get into the same going forward.

    EQTM: On a personal note, what takes up your time besides managing the Godrej Group?

    Mr. Godrej: I spend less and less time on day-to-day management of the Group because we have non-family professionals running each of our companies. I am now spending more time on strategy, human resource development issues, and on philanthropic and outside work.

    EQTM: Any personalities that you look up to, which have had a lasting influence on you?

    Mr. Godrej: People who have had a strong influence on me are people like Mahatma Gandhi. I have always been a great admirer of Gandhiji. I also admire Margaret Thatcher for how she turned around the British economy that was caught in the throes of socialism. I am an admirer of Jack Welch for how he built General Electric into a great corporation. I also admire Bill Gates for how he has built the largest fortune in the world through technology, and how he is now spending a lot of his time and money for philanthropic work.

     

     

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