We are readying for the inflection point when growth would be rapid: Rakesh Malhotra

Luminous Water Technologies Pvt Ltd (LWT) launched its brand Livpure RO in the water purifier category much after Aquaguard and Kent RO invaded the market, but quickly closed gap with them. Rakesh Malhotra, chairman and founder of SAR Group, told Praveena Sharma that LWT was now gearing for the inflection point, when water purifiers will see a huge surge in their demand.

How is the water purifier market shaping out?
It's still in very early stages of development despite being around for a while. Aquaguard (the oldest player) has been there for around 35 years, Kent RO (the first reverse osmosis player) for around 15 years but market penetration is still just 6-7%. That too, in the urban areas. But that doesn't imply that the balance – 93% – don't drink clean water. They do. Go to any compartment in a train and you will find pretty much everyone has a mineral water bottle in their hands. What that means is nobody is drinking the tap water from public places but somehow when it comes to their house they tend to believe tap water must be okay. The way I look at the potential is, you see outside how many people are buying bottled water and then see how many have bought purifiers in their homes. It shows that headroom for people to adopt this category is very large. There will be a time, somewhere in the future, when you will see five years of very rapid adoption with a growth of over 30% every year. Right now, the job of any company that wants to be playing the game is to be positioned for that time. All of us (water purifier players) are doing just that – positioning ourselves for that inflection point. I would say it would definitely come in 3-5 years but whether it will come in three years or five years, I can't say.

The government is in the process of upgrading water infrastructure in many parts of the country for 24/7 supply, and to provide clean water that can be consumed from taps. Does this initiative threaten the water purifier business?
Any business that is related to infrastructure deficit has its reasons to exist and has that threat (of infrastructure upgradation). At least, theoretically, it has that threat and, in varying degree, it manifest itself practically. That threat was there for my inverter business too, when in 1995, distribution of electricity was privatised. Now, we are in 2015, 20 years from then, and we still sell a lot of batteries and inverters in Delhi. There is still some degree of power outage. So, it takes that kind of time to fix the infrastructure. Water is going to be even harder. So, we (water purifier players) will continue to exist for a long time. Also, even after clean water is ensured by the government, then it moves to health level. Take the case of South Korea, its tap water is the cleanest on the planet but it has 65-70% penetration of water purifiers in homes. Once the basics are done, then it moves to alkaline water, ionise water ... so the health piece will keep moving up. Livpure as a brand stands for purity, health and wellness in water, air and food. So, our first step in journey of the brand is purity, which we started with water and now we are moving to air.

Are you able to log healthy growth in a crowded market?
In just three years, I can, pretty safely, say we are the third largest brand in the market by establishing presence in 24 states. We have clearly stepped ahead of the incumbent players. These guys have been around for a longer time but somehow they have not been able to break ice (with consumers). This is a business that needs very strong focus, and unless you are committed to doing it, you will not get very far. Yes, it's typical of any consumer business in India to be crowded. You see any business category, you will find there are too many players. As a country, we don't believe that being in a crowded market is a real issue. We talk to western businessmen and tell them that we are in a business where there are 25 other large brand. They find it crazy, but in India, it doesn't seem to bother anyone.

What is the export potential and how aggressively are you looking at it?
We have started exporting a bit. It will take us a while before we become substantial exporters but I think, there is an opportunity to export. Japan is a big market for exports, can you beat this? Also, the US is a large market for water purifier. On pricing, we are competitive but importers' (from other countries) expectations are different. So, what you make here may not necessarily be the right product for them. However, we are not defocusing. We have a big job on hand to build a brand and business in India. We can safely grow between 30% and 50% year on year for the next ten years, but we do need to tap the export market because 30-50% may not be good enough for us. We may want to grow at 80%. In that case, we need to export.

What kind of investments are you looking at over the next few years to grow your business?
In this segment, big investments are more on the consumer side, not on the manufacturing side. It is in product, market, services or brand development. These are the pillars of investment. Today, we have a manufacturing capacity of half million of ROs. Right now, we don't have such a large demand, we are building it and are getting there. Once we cross somewhere around 80-90% of that number, we will rapidly put up more capacity.

You have already gone for two rounds of funding (first from CLSA Capital Partners and second from Multiples Alternate Asset Management and CLSA Capital Partners), when can we expect the next one?
We are adequately capitalised right now.