'We are looking at a global acquisition for GCPL'
Piyush Pandey, The Hindu, 30 May 2016
Adi Godrej, Chairman of the $4.1 billion Godrej Group, is among the few hands-on promoters sitting on a cash pile and looking for acquisitions to further consolidate his businesses. The Hindu caught up with Mr. Godrej at his fifth floor corner office in Godrej One, the new global headquarters of the Godrej Group at Pirojshanagar at Vikroli overlooking 3,500 acre of mangroves, a valuable family asset. Edited excerpts:
In 2010 you set a target to grow 10 times in 10 years. Have you been able to achieve that?
Our growth target is what we call 10/10. To be 10 times our present size at any time 10 years hence, which is CAGR of 26%. This is to be achieved by growing partly organically and partially inorganically. First three years we grew at a much higher rate (over 30%) and last two years the growth has been slower (than 26%) because the economy slowed down.
Does that mean Godrej did well during the Congress regime and not so well during the Modi regime?
It has nothing to do with the Congress regime or anything like that. Last two years, the real GDP growth was at a high of 7.5 per cent and the nominal GDP growth was low at 8 per cent. Earlier the real GDP growth used to be 5.5 per cent the nominal GDP growth used to be 12 per cent because inflation was higher. Now, since the inflation is negative, WPI since last several months has been negative. Therefore the growth rates have been lower but the profit growth rates have been high in the last two years. So we have a lot of cash for acquisitions.
Can we expect some big acquisitions going forward?
We have made four acquisitions in the last six months. Of course, we are looking for acquisitions as we are very comfortable. If we get good acquisition opportunity, we would be able to provide for it. We are looking at an international acquisition for Godrej Consumer Products Limited (GCPL) and for Godrej Agrovet; we are looking at acquisitions in the Indian space.
Godrej is one of the few business groups with over 119 years of legacy. We have seen some of the other new business groups grow faster than you. Do you regret not getting into some of the fast-growing sectors?
At Godrej, we have grown very well and extremely well over the last few years. Our CAGR over the last 50 years is about 17 per cent. No regrets at all, No, certainly not.. We like to concentrate on what we are good at and what we do well. Even the market cap of Godrej Consumer for the last 15 years has grown at the rate of 30 per cent per annum. It’s one of the fastest growing market cap of any company in the country.
Which of your business would be the fastest growing in coming years and why?
I think my fastest growth company will be Godrej Properties. It is because no property company has even 5 per cent share in the market. It’s the largest category, largest market in the country or for that matter the largest market in any country. There are no restrictions on growth though competitors are there. So, we expect growth rate to be high and we have grown very well over the last 25 years.
Is it because of the huge land bank you have? What part of it can be developed and are there are any norms that restrict the development of mangroves?
That land bank is only part of our business. We are developing property all over the country. We have a total of 3,500 acres of mangroves and the development depends upon the permissions we get. We have some permission and we are currently developing two projects. For more, we have to apply for permissions and we have applied for permissions and as we get them we will develop more.
There are no norms as such but there are many restrictions, so it depends upon the rules, laws, and permissions we get.
Are businesses finding it very difficult to acquire land under the new government?
Acquiring land is not tough. Now it’s left to state governments and many states have passed legislation. State governments have got land and they are willing to allocate. We have set up two factories and acquiring land was not a problem.
Has the Modi government failed to address the issue of unemployment so far?
On unemployment, my view is little different. There are plenty of jobs in India, which are not being filled because there are not adequate number of trained and educated people. So, what we need is training and skilling. Once people are trained and skilled, they get jobs easily. If they don’t have skill, it’s difficult to get jobs.
There is now an emphasis on training, skilling and education. I would like to say that there is no unemployment in India, only unemployability. Even for things like skilled construction workers, boiler operators, carpenters, there is shortage in the country. We should match skilling and training with availability of jobs. We have had a British system and British were never good at skilling and training. The German and Swiss were very good at it and we are now adopting their method. For, example, in our CSR, we train housewives to run saloons from their homes, we have trained 1,000s of them and they get very good employment, they run their own concerns, they do very well.
At 74 years you are still a very hands-on promoter. When do you plan to hang up your boots and do you have a succession plan in place?
We are very professionally managed group. Most of our CEOs and MDs are non-family professionals. For example in Godrej Consumer, the MD is Vivek Gambhir, and in Godrej Agrovet we have Balram Yadav. So, we have a combination of family people in the businesses as well as non-family professionals. My son Pirojsha is MD of Godrej Properties, elder daughter Tanya is in charge across Godrej brands and corporate communications and is chairman of Godrej Nature’s Basket.
My second daughter Nisa is executive director in GCPL and looks after HR and innovations for the group as a whole. My younger brother Nadir is MD of Godrej Industries and chairman of Godrej Agrovet.
My cousin Jamshyd is the chairman of Godrej and Boyce. I am the Group chairman and chairman of some of the companies. First of all, we insist that family members who are professionally qualified can join and others can be shareholders but they can’t work in the company. Even family members join as management trainees and rise with others. We have a succession plan for everyone and not just family members but for all senior people in the group but that’s not discussed publicly. These are things that are private and conferential and not discussed with media.
Your take on the economy?
Next few years will be good for the Indian economy especially if the GST is passed. So we expect growth to be good going forward. Currently, we are the fastest growing major economy in the world. Our macro-economic fundamentals are in good control: fiscal deficit, CAD, inflation, forex reserves and reasonably strong currency. So we are in a very good economic position. We are now expecting not just one good monsoon, but three or four good monsoons, because La Nina has set in the Pacific Ocean.
If the GST is passed, which is likely now as the composition of Rajya Sabha will change in June in the monsoon session, to my mind India can get into double digit growth from the next financial year. Even in the January-March quarter, people are expecting 8 per cent growth. But, we have to see, numbers have not yet come in.
Do you see government policies propelling growth at the ground level?
This government is doing quite well. I think unfortunately we had two bad monsoons on the other hand we had benefit of low commodity prices. As we go forward the commodity prices are rising somewhat and the monsoons are likely to be good over the next few years.
The biggest reform pending is GST, that one reform alone will add to the good growth rates in coming years and the future of India’s economy is very good.
Of course, in a large country like India we will have challenges big and small.
I believe by 2050 in terms of purchasing power parity, India will be the largest economy in the world. The government has done a great job.
The government has identified defence as the next big opportunity for the private sector. What are your plans?
We are in defence supply we supply to many companies, both Indian and foreign. We are also supplier to Indian space programme and nuclear power programme. Our cryogenic engines even powered the space programme to Mars. We supply to Boeing and Rolls Royce. We see a big opportunity for growth in the defence sector because we are the largest importer of defence equipment and the government wants to be self sufficient.
India Inc. is struggling with cash….
Not all, most good big companies are at a comfortable level.
All IT companies have cash on their balance sheet; Reliance is very comfortable. It’s only the infrastructure companies and some steel companies who are in a very bad position.