Royal Philips seeks to make one acquisition in India over next one year
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New Delhi: Netherlands-based Royal Philips was one of the first multinational corporations to set foot in India back in 1930. Over the next few decades, Philips India Ltd ruled the consumer electronics market in India. But after the 1990s, it lost out to Japanese, Korean and Indian companies, and its contribution to global revenues also dropped drastically. In the past few years, the company reorganized its businesses in India, shifted focus to health-tech and consumer lifestyle products segments, besides its core business of lighting. The company managed to get back to growth, but profitability remained a key concern. Six months after joining Philips India Ltd as vice-chairman and managing director, Raja Venkataraman, in an interview with Mint, speaks about how the company is trying to boost profitability, increase its contribution to the global pie over the next five years. Edited excerpts:
Philips has its history in India. But for many, it is on its death bed. Most of your attempts to come back went in vain. During the past few years, the company has been vocal about medical devices. But, is not Philips late to the party?
It is unfortunate that people think Philips is a dead company. The compelling vision that Philips has, I don’t think any other company in the world has that. Globally, there is no other company that managed to make a perfect fusion of prevention, wellness, diagnosis, treatment and home care.
See, Philips is a brand that has touched every Indian at some point, and many points. The affinity for the brand, the trust that evokes, the faith that consumers have never faded ever. Philips is a very strong brand, connotes a lot of trust and faith, and leveraging that to drive health and wellness, right up to the home care, makes immense sense.
At the moment, the entire focus is on the biggest problem in the world—health. Look around, and think—is it a healthy population, globally, and even in India.
India has one of the largest demographic dividends. But, the problem with this country is there’s no early stage diagnosis and early stage treatment available. In a country where the propensity to pay is less, early diagnosis and prevention can actually be very beneficial as the cost of treatment would go down. It’s a very compelling vision. Globally, our aim is to touch 3 billion lives by 2025, and this country has 1.3 billion people. The opportunity is huge, and untapped.
If a trustworthy brand, which is now focused on healthy better living, can translate and address this, we can wake up the dead. Forget being a dead company that people think.
But, how will you make a cut in a market that is well served by companies such as Johnson & Johnson, Becton, Dickinson & Co., General Electric and Siemens AG?
First, Philips is a health-tech company, not a healthcare solution provider. The focus is to build solutions for this market (India), start with this market and take it to other emerging markets, such as Africa, South-East Asia, Middles East, Russia, and even eastern Europe, because in these markets, technology at an affordable price will have a readymade entry. Areas we are looking at include ultrasound, CT scanner, some of the personal health products, hair trimmers, mixer grinders, garment care products.
See, we have the advantage of being one of the most trusted brands, which now focus on detection, prevention, well-being and personal healthcare. Indian homes have known us for decades. And Philips consumers are loyal. There’s just a simple change in approach—target individuals at homes, rather than targeting homes with one gadget. Instead of one product that everybody can use, we now bring products for each individual in a household.
In recent years, we have made good progress in the areas of early detection by addressing some of the demographic issues that India has been facing. What we need now is to accelerate what we have been doing.
The issue is that a lot of us (multinational companies) tend to sell what we have from global stable. What we need to bring is what the customers want at the right price. What we need is to design and develop products that the customers want. Some have done it, some will do it. But it all depends on who gets ahead of the curve. You learn from mistakes of others who have tried to do these before. Philips has the capability, brand value in India, loyalty and high recall. I am sure that we would be able to push those agenda.
How are you doing that?
Three things—continue to profitably grow the business in India faster than the market, create a portfolio of products and solutions that are tailor-made for this particular market, leveraging the capabilities that we have in India, develop here and then take them to other markets.
What are your challenges?
Profitability is an area we need to work on. That is one of the biggest challenges that we need to address. For the past few years, we chased growth; now we want to chase profitable growth.
The thing is, profitability is not a function of cutting costs or increasing price, and you do both. But in businesses like us, it is more of making and delivering products based on what a customer might want, at price points that they can afford, with quality that is consistent and the quality that customers expect. It’s not an easy task. But that’s how you ensure profitable growth.
So, what is the level of profitability that you are targeting?
I cannot give a specific number. If we take an average of consumer products companies and healthcare firms, average profitability would be somewhere around 10-15% Ebidta. That’s the level I want to reach within the next 2-3 years. That’s the level of profitability we need to operate. At present, we are at a very low level of profitability.
How important is India to Philips’ global arena?
Today, we are probably relevant in terms of capability and prospects, but I would need to be relevant in terms of revenue as well. I would like to contribute at least 5% of global revenue in five years. (Philips global revenue was at €24.24 billion in 2015, up from €21.39 billion in 2014. Philips does not disclose India revenue.)
So, the main focus is to ramp up sales?
Besides that, we are looking at enhancing our capability as much possible. We are looking for acquisitions in India in the areas of health-tech and personal health, essentially areas we do not play. I would like to target space where I want to be where I am not present now. It could also be technology that is available readymade, or a great product that the current owner could not scale up. Over the next one year, we will close at least one.
What kind of war chest do you have for acquisitions in India?
We have a global war chest—there is a big chest that my boss has offered, I need to find the war. Every market is chasing that money. So, money is not an issue. Starting from $5 million to $100 million, or more, if that is of right value.
On manufacturing, how is India positioned for Philips globally?
Manufacturing is an issue in India. This country cannot have these technologies imported and be sold. See, the intentions of the government are noble, but it must understand where we are today and what it takes to propel. At the moment, for health-tech companies, it makes almost no sense to manufacture because of the duty structure. First, you have to ensure that duty on imports (of components) is zero. The only thing they should charge is value-added tax and only then will people invest. Because if my total cost is higher to manufacture in India, what is the difference between manufacturing in India and importing?
It’s simple. What did you do with the software companies? A plethora of stuff, incentives. If software can be a $160 billion industry, why can’t we think of making healthcare a $100 billion industry over the next 15 years? You can do that, but you need to think holistically.
This is a golden opportunity for India. But, no one is understanding (it). Someone, for some unknown reason, jacked up duties a few months ago. If things continue like this, the industry may actually stop or walk away. The reality is that India does not contribute much; actually very minuscule to the global pie. Profitability is a distant dream.