Start-up culture is very good for India: Adi Godrej, chairman of Godrej Group

Adi Godrej, chairman of Godrej Group, one of India's leading conglomerates, is highly optimistic of the country's future. He is of the view that India will progress dramatically over the next 5-10 years. In a free-wheeling conversation with Ashish K Tiwari, he speaks about the current economic and political environment, the government, its efforts on easing the business environment, start-up culture, the performance of group's business verticals, and so on.

Godrej Industries has had a good second quarter with majority of the businesses showing commendable growth over last year.

Yes, we have had a good July-September quarter. Major contributors to the growth have been the real estate, consumer and chemicals businesses. The consumer business performance doesn't come into our topline but certainly contributes significantly to our bottomline. In the consumer business, we benefited from lower input costs and we have been doing a lot of work on cutting costs such as overheads, production, logistics, etc, that is constantly going on. As a result, we are getting benefits from this exercise every quarter. So both of that helped and our bottomline growth in Godrej Consumer Products is much higher than our topline growth. The first half though was quite challenging for consumer companies as volume growth with most players was not really something to write home about and price growth wasn't there at all. Our topline growth, although I consider it low at 10%, was the best in the industry. However, earlier years you used to get part of the growth from volume and another part through price increases. Now there are no price increases and the entire sales growth comes from volumes. So from that point of view and with inflation coming down this is to be expected to a certain extent. But bottomline growth was very good and that has really helped in our case.

Can this volume growth momentum by consumer products companies be maintained in the coming quarters as well?

We certainly think so. That's because the macroeconomic situation is improving and the government has said it will bring in a lot of reforms after the Bihar elections. And if something like Goods and Services Tax (GST) comes in then it will be a sea change and we could see very high growth and it will be very beneficial for the entire fast moving consumer goods (FMCG) sector.

What are your observations on the way rural and urban markets are growing? The general perception in the industry is that both are pretty much growing at the same level now...

The FMCG sector certainly witnessed a faster growth in the rural markets earlier. Interestingly, rural is still growing a little faster than urban in our case though the differential has come down. Earlier the differential of growth was anything between 5% and 7%, now it has come down to about 2%.

Can we expect any changes in the rural growth scenario may be post the Bihar state elections?

We will have to wait and watch because the monsoon season has not been very good this year. We will have to see government policies and incentive programmes in the rural sector. Already they have announced higher procurement prices, so with the Rabi crop I think that should help.

On the group's real estate side, Godrej Properties created headlines with a landmark transaction.

Yes, we had the largest single transaction ever done in India's commercial real estate history. It was a Rs 1,479 crore deal wherein we sold a large office space of around 4.35 lakh square feet in our Bandra-Kurla Complex (BKC) development to Abbott India. A fair part of that was recognised in the second quarter and that has helped significantly. Generally, the realty sector is not doing well but Godrej Properties has managed to stand out and we have been growing ahead of the industry. Going forward, we expect to continue to do well.

Pirojsha Godrej had, during an earlier interactions, said the company would look at a combination of outright sale and leasing for the BKC commercial development. Also there were plans to bring in private equity investors in it. Do we see a change in that approach now?

By and large, we will sell though we have no objection to leasing but post leasing we will sell the property to somebody. So at the BKC development we will only sell. However, at Godrej One, which is our new office building at Vikhroli and new headquarters of Godrej Group, we will only adopt the leasing approach as we may want to use the property at a later date. As for bringing PE investors on board for the BKC office building, we don't really require it but if there are opportunities we will certainly look at that option. For instance, for individual projects in Godrej Properties, we have brought PE investors in the past and we will be open to such opportunities. Fortunately, our sales are good and the debt to equity ratio is also down, and we are in a very comfortable position now.

The residential side of real estate sector has been a huge dampener this year. Any specific thoughts observations you would like to share?

Generally speaking, I think residential is dull as a category but we are doing quite well. In fact, we have seen good demand especially for some of our new projects in Chembur and Vikhroli area. The Trees is an interesting project that we are doing at Vikhroli. It will have a commercial building slightly larger than our Godrej One headquarters in addition to large residential spaces. In fact, we are opening up the first phase of the residential project very soon. While we have been in the low price, affordable housing segment with projects in Pune and Kolkata, another development will soon be launched in Badlapur area -- an extended suburb of Thane district. This apart, we are doing several redevelopment projects like the one we are doing in Byculla.

So under properties business, will it be a mix of commercial and residential developments going forward?

No. We will have more residential projects and some commercial developments of course. While affordable housing will be an important category as well, we are of the view that other categories will do well too and we want to have a play across all the segments.

One of your companies made an acquisition in the September quarter. What is your view on inorganic as a growth strategy?

Inorganic will be a big part of our strategy in some of our businesses. We have acquired a business in South Africa in Godrej Consumer Products. We had also increased stake in the Chilean joint venture company (Cosmetica Nacional) from 60% to 100% during the quarter. Also, under Godrej Agrovet we a listed niche agro chemical company called Astec LifeSciences, to further strengthen our agro chemicals retail presence in the country. We will soon be making an open offer for minority shareholders in that listed entity.

What is your outlook for the group's agrovet business?

We think it will progress now. I think the economy is on the mint and growth rates will increase. As you'd know, the macro economic situation is under control so we've got to watch the situation. We expect in one or two quarters, Indian growth rates – even in the consumer and other sectors – will improve.

Is there commendable improvement in the ease of doing business as was promised by the new government?

The government is keen on improving the ease of doing business in the country and they are making some announcements in that direction. Recently, they said about simplifying the permissions process. M Venkaiah Naidu (senior BJP leader and Union parliamentary affairs minister) had made a big statement on that saying he will work with the states. I think in various directions they are working to improve things and we hope it will have results on the ground very soon.

A lot was expected of the new government when it came into power. Have they come anywhere closer to the expectations of the corporate sector?

Not everything is back to the ideal situation yet. So hopefully it will soon improve.

How is the Nature's Basket business progressing? I believe you were looking at some value unlocking opportunity there as well. Will you look to take it public too?

We have no plans to list Nature's Basket as it's too small an operation to list currently. It continues to grow well and we will continue to invest in this business. As for value unlocking is concerned, it is a possibility but we will watch. Private equity players aren't very interested in such things currently and are sitting on the fences. So if the opportunity arises we will certainly look at that (value unlocking) possibility. But it's not a priority area for us.

You also have an incubation vertical in the group that looks at new businesses...

That's under Godrej Agrovet called Omnivore Partners, which is a venture capital firm that invests in start-ups from India developing breakthrough technologies for food and agriculture. We have made several investments and will continue to do so in the future.

What is your view of the growing start-up culture in the country?

I think the start-up culture is very good for India. Instead of looking for jobs people are creating jobs and that's very good for the future of the country.

Of late, there have been instances of things going wrong with quite a few start-ups in terms of the way they conducted business...

Some of it is bound to happen. The whole idea of start-ups is that some will succeed and some will not. I mean, one has to live with that reality.

Would you also consider investing personal money in backing up new ventures the way Ratan Tata has been by picking up stakes in a lot of e-commerce start-ups in his personal capacity?

No, I wouldn't be keen on it.