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The $33 Billion Dream

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Call it a coincidence or give it any other name. Inside the lush green Godrej campus in Mumbai's suburb, Vikhroli, a curious look leads to the discovery of several pairs — there are two aerated beverage bottles resting below a coconut tree, two pairs of tweezers jabbed into the bark of another tree and there are two Godrejs.

At one Godrej, young employees are getting comfortable with the idea of switching over from PCs to Macs. In the other, a group of senior engineers look at an old-world laptop at a workstation and debate if it's a notebook or not. (That is no exaggeration.)

These two Godrejs — Godrej Industries Limited and Associated Companies (GILAC) that has FMCG, properties and chemicals under it, and Godrej & Boyce (G&B) that has appliances, interiors and security solutions among its 14 business lines — are combining forces in the pursuit of one magic number, $33 billion. Their deadline: 31 March 2021.  

(part of Godrej Industries)
A. Mahendran, managing director

Business: Has products such as Good Knight, Hit, Ezee, soaps (Cinthol, Godrej No. 1 and Vigil) and hair colours

Growth aim: CAGR of 26 per cent in 10 years or over Rs 36,500 crore ($8 billion) by 2021

To reach that staggering number of Rs 1.5 lakh crore, GILAC targets a turnover of roughly Rs 80,000 crore (about $18 billion at current exchange rates) with the remaining $15 billion expected to come from the G&B companies. At present, GILAC accounts for $2 billion of the group turnover with the remaining $1.3 billion coming from G&B companies. But for a group that has remained conservative, even for a large part of the two decades after liberalisation, this ambition seems larger-than-life. 

The World Outside
In 1991, the country's leading family business houses — the Tatas, the AB Birla group and the Ambanis had a group turnover of Rs 14,000 crore, Rs 3,100 crore and Rs 2,300 crore, respectively. Godrej group's revenues were a mere Rs 1,000 crore. In 2010, according to the latest numbers available, the Tatas, Birlas and the Mukesh Ambani-led Reliance Industries have increased their group turnover to Rs 3.46 lakh crore, Rs 1.35 lakh crore and Rs 2.6 lakh crore, respectively. Even other family-promoted groups such as Essar grew from Rs 350 crore to Rs 67,400 crore, while Mahindra & Mahindra jumped from Rs 1,030 crore to Rs 56,000 crore.

In comparison, the Godrej group has moved up to Rs 14,800 crore ($3.3 billion). Though this means growing 15 times in two decades, others, Reliance Industries, for instance, grew their topline by as much as 112 times.

Nadir Godrej, managing director of Godrej Industries, and younger brother of group chairman Adi Godrej, explains that this was largely because the group as a policy keeps away from highly regulated businesses. But some do not buy that argument. Take the IT services business, which has little government regulation and also created several billion-dollar companies in India. Did Godrej miss the bus there, despite being one of the earliest entrants in that space? Godrej & Boyce set up an infotech division almost three decades ago and spun it off as an independent entity in 1999. Geometric, another software company by the group that was set up in 1994, is just a Rs 620-crore company today, compared to Infosys that is about Rs 27,000 crore. The company also made an entry into the BPO business in a JV with US-based Upstream and later acquired the partner's US operations. However, they decided to get out of the business three years later as their major clients, the US airline industry, put a lid on outsourcing deals. "From our businesses, the profitability is higher. Also, we did not dilute our ownership much for rapid growth," he says.

Any remarkable shift in this policy is unlikely in the near future. "If you ask whether we try our luck in fast-growing sectors like telecommunications or insurance, the answer is no. There are tremendous opportunities in the areas in which we are already in, both in India and outside," says Adi Godrej (see his interview on page 38). Godrej is banking upon businesses with a strong end-consumer interface to meet the new target. That "over 500 million Indians interact with the Godrej brand every day when they use a soap, open a lock or their refrigerator door", has been Godrej's pet line for a couple of years now.

Sure, there is a gap between saying and doing. Between the two holding companies GILAC and G&B, the group has about two dozen companies dealing with everything from aerospace to chicken feed. Nisaba Godrej, Adi's younger daughter who heads the human capital and innovation functions at Godrej Industries, says, "We are reimagining what we can be. We are in many businesses. But we believe in making sharper choices in what we are good at and where we want to go."  

(part of Godrej Industries)
Pirojsha Godrej, executive director

Business: Real estate 

Growth aim:CAGR of 40 per cent in 10 years or around Rs 16,000 crore ($3.5 billion) by 2021

Can Do, Can't Do
Are Godrej's senior managers as enthusiastic? The same evening that the new target was announced, a survey was sent to the top 100 people in the Rs 3,600-crore (consolidated turnover) Godrej Consumer Products (GCPL), the group's largest company. Vivek Gambhir, chief strategy officer at Godrej Industries, says that when asked, ‘how inspired are you by this goal?', 90 per cent managers chose ‘very inspired'. The other question was how achievable this goal is. One respondent said ‘it's a piece of cake', but the majority said ‘it's achievable'. One senior manager, however, apparently asked, "What are you smoking?" (The poll was  anonymous.)

One such sharp choice is GCPL. The company that makes up 20 per cent of the group revenues, has been at the forefront of the group's acquisition strategy in recent times. Over the past 10 years, GCPL has delivered a compounded annual growth rate (CAGR) of 23 per cent in revenues, while in the past five years, its CAGR shot up to 38 per cent. Another focus area, the appliances business (refrigerators, washing machines, microwaves and televisions), currently has a turnover of Rs 1,550 crore, and targets $1 billion-plus by 2016.

Then there are relatively smaller but promising businesses such as the Rs 1,200-crore Godrej Interio that makes everything from office equipment to home furniture and targets to be another $1-billion business in another five years. Godrej Properties has grown from Rs 40-crore in 2004, when Pirojsha Godrej, Adi's youngest offspring, joined the company, to Rs 550 crore now. With an expected y-o-y growth of 40 per cent-plus, it could grow by as much as 31 times to become an Rs 18,000-crore company in 10 years, provided it sustains the momentum. "Our strategy is a little more ambitious than the group's 10x10 strategy," says Pirojsha.

Click To View Enlarged ImageOne could say it is an uphill task as the group is in highly competitive sectors such as consumer durables and FMCG, which have deep-pocketed global players. In FMCG, as Godrej increases its play in emerging markets across Asia, sub-Saharan Africa and Latin America, it will take on giants like Unilever and Procter & Gamble, particularly in the personal care space. In household insecticides, there are SC Johnson and Reckitt Benckiser to reckon with.

In real estate, Godrej Properties competes with national biggies such as DLF and Unitech and regional players such as Hiranandanis, Rahejas and Sobha Developers (see ‘Godrej's Property Play').

Or take the Rs 35,000-crore consumer durables segment, which is largely dominated by LG, Samsung and Sony. Indian players such as Videocon also closely compete in categories that Godrej was once synonymous with — refrigerators. According to Consumer Electronics and Appliances Manufacturers Association, in 2009-10, Godrej sold 1.4 million refrigerators, Videocon 1.38 million, and LG 2.62 million units. But Godrej's strength lies in its distribution. In washing machines, for example, it has access to as many as 14,000 dealers or distributors compared to Videocon's 3,000. Only LG has more clout with 20,000 distributors.

Click To View Enlarged ImageRivals are not impressed. "The product pipeline and global R&D budgets of international players cannot be matched by the Indian players," says an executive of a leading durables MNC. Phiroze D. Lam, executive director and president, Godrej & Boyce, agrees but says companies like Godrej can make an impact by innovating for the Indian market. "The multinationals do not innovate for our conditions like erratic power supply," says Lam.

To have superior product designs and innovations, G&B has set up a 25,000-sq. ft incubation zone — the brainchild of Navroze Godrej, G&B chairman and managing director Jamshyd Godrej's son. Its main mandate is to "provide what consumers want and not what companies think they want". One of their recent innovations is ChotuKool, a battery-powered refrigerator. Priced at Rs 3,500, compared to other base refrigerators that start at about Rs 8,000, the company is targeting rural customers and even vegetable vendors or paanwallahs in urban centres. Lam expects ChotuKool to even enter office cabins. The company has also started marketing ChotuKool through post offices in rural areas, where the postman and the postmaster can earn from every sale. "In terms of innovation, we have come a long way. Our companies have become more consumer-focused and make products with relevant technology," says Navroze.

Click To View Enlarged ImageIn FMCG, Godrej has been largely seen as a maker of soaps and hair dyes in India, and that too a distant second to the market leader in soaps, Hindustan Unilever. Now, after Godrej acquired Sara Lee's stake in their household care joint-venture last year, and the subsequent merger of that business with GCPL, household insecticides has become the largest business segment for the company, overtaking the low-margin, high-volume personal care business.

Another perception is that many of the company's FMCG acquisitions have only been in niche companies — a perception that strengthened when the group committed Rs 900 crore last month towards acquiring Senegal-based hair extension major, Darling Group, or when it acquired the Indonesian household insecticide major Megasari last year for Rs 1,200 crore. The group's executives say the household insecticides market in Indonesia is worth $500 million and Indonesia is the fourth largest among developing markets. Similarly, the hair extension business in Africa is estimated to be worth $1 billion and growing at 15 per cent annually.

Analysts say more of such action will be required to realise the $33-billion ambition. "They will have to change the overall strategy, create management bandwidth and look for larger acquisitions," says Deven Choksey, managing director of K.R. Choksey Securities.
The Future Is Now
Management bandwidth has been created by getting professional managers to run key companies. A. Mahendran, who joined the group when Godrej acquired Transelektra (GoodKnight) in the 1990s, is now the managing director for GCPL, while Lam, who has been with the group for more than three decades, is in charge of the Godrej & Boyce companies.

The fourth generation Godrejs have also brought in new energy to what they call a "114-year-young" group. "Things look exciting. The previous generations have built a strong foundation for the new generation to execute their ideas. They have an advantage that the third generation is here to guide and correct them," says Vijay Crishna, executive director at G&B and Jamshyd's brother-in-law. Nadir Godrej agrees and says the role of his (third) generation is to listen to the new ideas, select the better ones and push them forward.

The third generation has also ensured that no one in the next generation treads on the other's toes. As Tanya Dubash, Adi's eldest, took charge of marketing and communications, her younger sister Nisaba looked after strategy, human resource and innovation. Pirojsha, their younger brother, took up Godrej Properties. Cousin Navroze is studying design in the US, while Nyrika, who is the daughter of Smita (Jamshyd's sister) and Vijay Crishna, is currently training in law firm AZB & Partners.

Lam, who has worked with three generations of Godrejs (he started off under Jamshyd's father, Naval), says, "Navroze will bring in two great benefits — humanities and design. When you marry it with Jamshyd's engineering skills, it will be a great partnership." Mahendran adds that the third generation was more emotional while the fourth generation's philosophy is "tough love", as Nisaba calls it, for their employees. "Now the organisational culture has changed to being innovation-oriented and consumer-centric," he says. A former employee, however, cautions that the younger generation tends to get carried away with the latest management fads, which it needs to control.

Nevertheless, the fourth generation is keen to prove itself. "I wanted to join a company of a size that one can contribute to on an immediate basis than join one of the larger or established companies," says Pirojsha. Three years ago, the design language of Godrej changed with the introduction of a colourful and vibrant Godrej logo that was unveiled in April 2008, the first major initiative of the strategic marketing group headed by Tanya. "We have been on a roadmap to managing the brand as a strategic asset to enhance value. Managing the brand strategically meant putting it at the centre of the organisation and leveraging every aspect of the brand by every function in the organisation," says Tanya.

BW ArchiveThe Hidden Value Of Godrej Group Is Its 2,800-acre property at Vikhroli in Mumbai. The property was bought in the 1940s by the then group head Pirojsha, the brother of founder Ardeshir Godrej, at a public auction. It was an expensive affair, considering the purchase of neighbouring lands from the settlers, and the debt burden shot up.

About 1,000 acres can be developed, while the rest comes in a mangrove belt. Rough calculations show that the property would fetch Rs 50,000 crore (about $12 billion) at a floor space index (FSI) of 2. But the Godrejs do not plan to unlock the entire value immediately.

At present, Godrej Properties plans to develop about 3 million sq. ft in Vikhroli by 2017. For this, it has formed a joint venture with Godrej Industries (GIL) on profit sharing ratio of 60:40. But GIL will get 81.6 per cent profits (40 per cent from direct share and 69.4 per cent through stake in Godrej Properties). The group is also shifting its manufacturing units from Vikhroli to other locations. Since Godrej & Boyce, too, has a real estate firm, Godrej Construction, most of the Vikhroli land development would be through a profit-sharing method.

As Godrej Properties looks to grow in the future, it may raise funds through equity dilution. At the consolidated level, at Rs 9,500 crore turnover last fiscal (according to BSE), DLF is 20 times bigger than Godrej Properties, while Unitech is six times bigger in terms of revenue. But the Godrej company has almost double the margin of DLF and Unitech.

The makeover did not stop there. Ashutosh Tiwari, vice-president and a key member of the strategic marketing group, adds that the rebranding exercise helped increase the consumer affinity towards the Godrej brand from 61 (on a scale of 1-100) when the rebranding initiative was launched to around 73 currently. Even purchase disposition towards Godrej products — buying more, a wider range, willingness to pay a premium and recommend to others — has seen a disproportionate increase. He says that the number of consumers having four or more Godrej products in their households has also increased from 25 per cent of the overall consumer base to 27 per cent now. Will that be enough to reach the Rs 1.5-lakh crore milestone? "Even if we get close, it will be a special accomplishment," says Pirojsha.

bweditor(at) abp(dot)in

(This story was published in Businessworld Issue Dated 11-07-2011)