BackAdi Godrej | All JVs are short-term investments
Adi Godrej | All JVs are short-term investments
PremiumAim-driven: Godrej chairman Adi B. Godrej says once the purpose of a joint venture is served, one moves on.(HT Photo)
Mumbai: The Godrej brand name has traditionally had a strong association with locks and keys. However, over the years, the $3 billion (Rs 16,800 crore) group that was established by lawyer-turned-locksmith Ardeshir Godrej in 1897 has metamorphosed into a conglomerate that has interests in everything from processed chicken to property. It’s now the largest manufacturer of powdered hair colour in the world. In an interview with Mint, chairman Adi B. Godrej speaks about these developments, discusses the group’s strategy and explains why some of the joint ventures (JVs) have soured over the years. Edited excerpts:
You made around eight acquisitions in 2010. How have they panned out? Will you buy more?
They have been extremely successful. We acquired these businesses around two years ago, though Rapidol was five years ago. Very significantly, around that time we acquired our 51% stake in our joint venture with Sara Lee.
Any gaps in your consumer portfolio that you would like to fill?
It is not about gaps. It is also a question of opportunity. So, there must be an opportunity that matches with our strategy. Just because we have a gap, we don’t want to go and acquire anything and everything. What we acquire should fit in with our strategy, human resources and market expectations.
Godrej has had several joint ventures, which do not appear to have worked out very well...or were they done serving their purpose?
Usually, our JVs have been successful. We are very clear that JVs are short-term arrangements and almost never long-term ones, whether it is globally or in India. Both the foreign and Indian partner may need it strategically or tactically for certain purposes and once that is served, one moves on.
We acquired the GE Appliances shareholding (in the early 2000s) because GE did not want to be in a business where they were not among the top two. At that time, we were number one in India in consumer appliances, but they (GE) defined Asia as their market geography. Our JV with Procter and Gamble (P&G) was in the soap business, but P&G decided in the 1990s that soaps was not an area of focus for them. The winding up was amicably sorted out.
Our JV with Pillsbury Ltd was for marketing wheat flour, which wasn’t our area of focus. They requested us to restructure the JV, which we did. Similarly, Sara Lee was getting out of the household business and personal care products segments globally to concentrate on food products. We saw this as an opportunity to buy out their shareholding. We did and merged it with Godrej Consumer Products Ltd (GCPL). And we have benefited from that move.
Update us on your JV with Hershey’s? Is it on shaky ground?
This is all media speculation. It is a subsidiary of a listed company, so we do not have to say much as we are announcing the results soon.
GCPL’s strategy to venture into emerging markets has gone well. Any plans to bring back products to India from the companies acquired there?
When we acquire businesses in the developing world, we estimate if the growth opportunities are strong. Secondly, we concentrate on the bottom-of-the-pyramid products that are good quality and at reasonable cost. And certainly, some of the ideas can be imported here.
For example, we used to make and market a brand called Ambi Pur on licence in our Sara Lee JV and our Indonesian acquisition is a pioneer in air freshener, a brand called Stella in Indonesia. Recently, from learnings from both of these, we have re-entered the air freshener category in India with the brand Godrej Aer, which has done exceedingly well for the few weeks it has been launched.
In Africa, we are the leaders in hair colour in 14 African nations through our company called Rapidol in South Africa, but the products there were all crème-based colours.
We are good at powdered colour products, the largest manufacturers of powdered colour in the world. We have taken out powdered colour product into Africa, but marketed into the Inecto brand which is the main brand of Rapidol and not as a Godrej product. Similarly, we are marketing the air freshener under our brand in India. We leverage the locally well-known brand.
When we took over Rapidol, we were leaders in about eight to nine countries in Africa. Now we are leaders in about 14 countries in Africa. And our businesses have grown a lot over a span of five years.
Omnivore Capital, your group’s private equity arm, has invested in Skymet. Any updates?
We own only a small percentage in Omnivore, but we manage it. It is basically a venture capital fund to help newer enterprises and provide them with the funding they require in their early stages of development. But we are not aiming to acquire the company at a later stage.
The idea is to encourage new technologies globally, which can add to the agriculture and veterinary businesses, and leverage these ideas to help Godrej Agrovet too.
Why did Godrej choose the institutional placement programme (IPP) route for two of its flagship companies?
There is a (Securities Exchange Board of India) rule that all the companies have to reduce their promoter holding to 75% by June 2013. We figured that the IPP route suits this purpose and is easy, so we might as well do it early and not wait for the markets to turn bad or worse. Offer for sale (OFS, which is another share sale route) requires promoters to sell their stock, while in IPP the money goes into the company and not to the promoters.
Will Godrej Properties move away from its JV model towards owning land? Also analysts say that a lot of its revenue and operating margins come from intra-group transactions.
The company will continue the JV model. The intra-group dependence perception is not true. Of late, some of the revenue and earnings before interest, tax, depreciation and amortization, or Ebitda, has come from inter-group transactions, but in the past, there was none. It is happening now because we are developing a major project, Godrej One, in Vikhroli (an eastern suburb in Mumbai). The company does not want to sell this to outsiders, so a third will be used by us and two-thirds will be leased out, ensuring that the ownership stays with Godrej.
zahra.k@livemint.com
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