Once GST falls in place, there'll be uptick in investments
Nachiket Kelkar, Hindustan Times, 14 August 2016
Adi Godrej, chairman of the 119-year-old Godrej Group, is one of the most visible faces of the industry. From the locks business in 1897 to consumer goods, agriculture, and real estate, the $4.1 billion Group has come a long way. He spoke to HT about recovery in the FMCG business, and chances of a family member becoming the Group head, among other things. Excerpts:
After two years of drought , are there signs of recovery?
With a good monsoon, there have definitely been better signs. In the April-June quarter, our profit grew by 18%. The economy is picking up and after two bad years due to the La-Nina effect, we should have two to three good monsoons. Then, the GST constitutional amendment is also passed, which will add tremendously to economic activity. Other factors like the Pay Commission payout will also boost consumption.
Has the government done enough on reforms? Has ease of doing business improved?
There have to be constant reforms. It’s like progress. You can’t say progress is enough, ever. As far as ease of doing business goes, unfortunately, state governments are still slow in clearing projects, in areas like real estate. Though, we are certainly in a better position, than we were two to three years ago. But, in certain areas, there needs to be further improvement.
Despite reforms and the economy picking up, why is the private sector still not investing?
One, with very little investment, productivity is improving strongly, and this is driving GDP growth. Secondly, consumer offtake was slow in the last two years. Once that picks up, companies will need new capital investments to raise production. I expect huge increase in investments ahead of 2017-18 . Even, we will have to do more across businesses. If all legislations, including GST, fall in place, we may have to raise investments this financial year.
Do you see a turnaround in the real estate business?
Godrej Properties has continued to grow. But, real estate market is still weak. I expect good growth from 2017.
Do residential property prices need to come down? Even RBI governor Raghuram Rajan had talked about the need to reduce prices.
I don't think the governor is an expert on property. You can't cut property prices as costs are high. For instance, land costs are expensive as India has a land shortage.
Godrej Agrovet had a 50% revenue growth last quarter. You have made two acquisitions, including Creamline Dairy last year. Is this going to be a big future driver?
Creamline Dairy fits in exceedingly well in our business. It is a consumer products business. Secondly, Creamline sources directly from farmers, and we will sell the farmers our products like cattle feed. We plan to scale up in the dairy business going ahead. We will look at all aspects of expansion and make investments wherever there are opportunities.
Are you mulling Agrovet IPO?
We will look at an IPO of Agrovet at the right time, if we do need to raise capital. No definitive plans yet.
Has there been any decision on the succession front?
My children are very much in the business, playing bigger roles. We are also grooming young professionals. Many of our companies such as Godrej Consumer Products, Agrovet, are being managed by non-family professionals. However, the position of the group chairman will remain with the family.