Mumbai: Godrej Appliances, the white goods division of Godrej and Boyce Manufacturing Co. Ltd, is planning to diversify into kitchen appliances and focus on low-cost water purifiers for growth.
The diversification will help create synergy with group firms such as Godrej Interio, which makes modular kitchens. The move will also build on the appliances range, which includes microwave ovens, refrigerators and water purifiers.
The cheaper purifiers also complement the existing low-cost refrigerator—Chotukool— that caters to the rural market.
“We have identified very clearly spaces where there is synergy with the brand. For example, water has very strong synergy with the brand Godrej, which is known for trust,” said George Menezes, chief operating officer of Godrej Appliances.
The firm will face competition from rivals such as Hindustan Unilever Ltd and Tata Chemicals Ltd, which also offer cheap water purifiers. On the appliances front, it’s seeking to enter smaller towns and rural areas, where it could be followed by Korean giants Samsung and LG, which already dominate the urban segment.
Menezes expects the company’s sales to rise to Rs1,700 crore by the end of FY11 and Rs5,000 crore by FY15, from the Rs1,300 crore it posted at the end of the year to March.
The improved performance has been noted by analysts.
“The appliances division, which was earlier making losses, registered a gross operating margin of 5.6% for the 11-month period ended February 28, 2010,” said a 12 April Crisil report. “This was due to lower raw material prices, excise duty benefits and favourable exchange rates, besides strong revenue growth on the back of an improving product mix and a revival in the economy.”
The expansions will account for close to 30% of revenue even as the company remains a white goods maker, with a product portfolio that includes air conditioners, washing machines and refrigerators.
“In next three years, I would still consider white goods to contribute 70%,” said Menezes, who has seen the firm return to profitability and revival with growth rates of 30% since 2006.
The move comes after it phased out a diversification into so-called brown goods with DVD players.
“This market is very competitive,” said Menezes.
However, the company is extending its test marketing of televisions this year from Andhra Pradesh to West Bengal, Kerala and Maharashtra. Menezes expects the company, which has tied up with a European TV manufacturer, to grow at 40% on account of the pilot extension. “The television category is twice the size of refrigerators,” said Menezes.
Over the last five years, the appliances division has revamped its products to suit local needs through the Eon range. For instance, Godrej developed a patented cooling server technology that allows a refrigerator to have up to 36 vents as opposed to four-five internationally, because local users are liable to load up their units and block the vents.
Likewise, its washing machines switch off in case the power fails, a common occurrence in most cities.
The group also bought in Boston Consulting Group to improve operational efficiencies, besides launching a branded dedicated after sales service—Smart Care. It also benefited from the emergence of large-format retail stores, reducing its dependence on distributors. Today, close to 30% of revenue come from big formats, said Menezes, who expects this to rise to half in the next five years.