Chennai: The Chennai-based Murugappa Group’s revenue rose 63.3% to Rs15,646 crore in the year ended 31 March—its biggest annual increase ever. The rise also marked Murugappa’s entry into the $3 billion club—companies or conglomerates with revenue in excess of $3 billion (Rs14,670 crore). In an exclusive interview, A. Vellayan, vice-chairman and director, strategy, of Murugappa spoke to Mint about the group’s growth drivers and its future plans. The Murugappa Group has 27 companies, with interests including engineering, finance, fertilizers and sugar. Edited excerpts from the 22 May interview:
Stabilization mode: Murugappa Group vice-chairman A.Vellayan at his office in Chennai. Sharp Image
The year gone by has seen the sharpest increase ever in the group’s revenue…
It was a rise largely driven by commodity prices because in the fertilizer sector, prices went up worldwide, and that figured in our turnover. The jump is not sustainable in terms of turnover because when commodity prices come down, our turnover comes down although our volumes may go up.
Besides the fertilizers business contributing significantly to the overall turnover, were there any other factors responsible for the growth?
The sugar business has seen a lot of investment going into it and, starting part of last year and into this year, we will see returns coming from there both in terms of turnover and profitability. The investments have been sizeable: Rs500-600 crore has gone into cogen (cogeneration), distillery, expansion of plants and so on. The drop has been mainly in financial services and in the engineering sector.
Can you elaborate a bit on your statement that the turnover won’t be as high this year?
If you take commodity prices as they are, even on increased volume terms, our actual volumes in fertilizers will go up by 20% but our turnover will drop by 30% because the per tonne price of inputs have come down.
Much of the group’s revenues are from sugar and fertilizers that are government-controlled. So, profitability could be a concern. How do you plan to tackle that?
The key issue is our relative efficiency over competition. What’s controlled for us is controlled for the rest of the industry (as well). So, we are able to perform better than the rest of the industry in terms of our efficiency in processing raw materials, conversion of raw materials and dealing with the waste materials that is coming out of both these. And, our value addition and profitability are better.
Your engineering and finance businesses didn’t do too well last year. What went wrong and where?
In finance, we were traditionally doing asset-based finance, which was essentially vehicle finance and home equity and some financing of shares. Then, we went into the personal loan sector, which was new to us. Unfortunately, we entered at a time when the market took a dip. So, when people take personal loans and they are invested in the stock markets or they are invested in their businesses or they lose their jobs, they don’t repay. So, delinquencies rose. It was a timing issue as well as an issue of unsecured lending.
Talking about finance, are you planning to look at life insurance anytime in the future?
No. I think there are too many players in the field. At present, we have no plans because we are only now stabilizing our general insurance...and also due to large capital requirements.
This is related to TI Cycles. What is the potential in this business? In certain countries, there are concepts such as rent-a-bike. Are you planning to diversify to such areas or is it going to be largely export-oriented?
This business has three-four extension possibilities. One is clearly into the health sector, which they are foraying into. It is taking a little time but they are getting into it. Second is into the racing bike sector where we have tied up with Bianchi and Cannondale. Despite the prices, products are selling today. People are buying Rs75,000-100,000 bikes. Third is renting. We are now in a number of spots—tourist or otherwise—renting our bikes for use. Fourth are exports. Even in the core business, there will be around three million bikes even in the current situation. Even when the industry is shrinking, we are growing.
Now that the Indian government is planning to spend huge amounts on infrastructure projects, is the group planning to participate in such ventures through Parry Infrastructure Co. Pvt. Ltd?
Parry Infrastructure Co. Pvt. Ltd’s mandate is more to look at facilities, which the group has, and then develop them. The various (group) companies have land at across various locations, which we have not developed. Throughout the country, we have around 2,000 acres and some of it is in cities and some of it is in rural areas, some of it is in ports. What we want to do is we want to bring this value back into the balance sheet by developing it. The vehicle, which will be used for this development, is Parry Infrastructure. The benefits will go to the respective companies that own the land.
But after this, would you look at taking up external projects as well?
Right now, there are no immediate plans.
Are you planning to look at power as a big focus area, considering that you already have some experience in it?
We are looking at power projects of up to 50MW and not mega power projects. We have got 100MW of power; in the bagasse-based areas, we have got some experience. We are looking at similar possibilities in the biofuel and bagasse-based types (of power plants) given the land area that we have and given that we have demand, whether we can set up in those areas.
Having said that, would you consider looking at wind energy as a business proposition?
We went into wind sometime back. Our experience has not been too good.
Why was that?
I think it was a combination of reliability of equipment plus hassles of operating in remote areas, maintenance. Then, you are not really in full control of your destiny. If there is world global warming, the weather pattern is changing and the wind doesn’t come; you’ve set up a windmill and the wind doesn’t come, what do you do?