In Search of a Key
How the 118-year-old Godrej
& Boyce is trying to unlock growth drivers among its legacy businesses
Hiring a teacher is often a
smart move. About four years ago Hemmant Jha, a professor at the Institute of
Design in Chicago, US, was pre paring to accept the final presentations by
groups of students who had worked on India centric products and ideas. Some
students not related to the course walked in and requested to be allowed as
audience. In this audience was a scion of an Indian business family -Navroze
Godrej. Navroze is the son of Jamshyd Godrej, the chairman of Godrej &
Boyce Manufacturing Company Ltd (G&B). A student-group working on an idea
for a low cost washing machine and hoping to pitch it to Navroze requested him
to join in. In his 20s at the time, Navroze ended up chatting with professor
Jha. It was momentous. In two years Navroze got Jha, an engineer specialising
in design, to shift base to Mumbai and head the Innovation Centre of G&B at
Vikhroli, an eastern suburb of the city where the ` 32,000 crore Godrej group
is headquartered.
Navroze had been working on
innovations at G&B before he left for Chicago. His team had come up with
the `ChotuKool,' a box-type battery-powered cooler and, later, the `Goldilocks'
locker, a box to store away everyday-use valuables. Navroze, however, wanted to
make a bigger, more fundamental impact on the 118-year-old company set up by
his ancestors. He wanted to hasten change within a manufacturing giant with
standalone revenues likely to touch `10,000 crore in 2015-16. G&B builds
everything from locks to rocket launchers, from cupboards and air-conditioners
to satellites, and yet struggles with indifferent growth (in 2014-15, net margins
were in single digits, with G&B showing a profit of `511 crore on revenues
of `8,269 crore. This profit was considerably boosted by sale of investments
worth more than `300 crore).
All about Radical Business
Even as a Godrej, a member
of the promoter family, Navroze needed something more to effect a radical
change. This urge took him to the Institute of Design -a small design school
within Chicago's Illinois Institute of Technology. The school, set up in 1937,
is inspired by the Bauhaus of the early 1900s, the German art school that
combined art and industry and greatly influenced European architecture and
design. Navroze thought it best to bring back one of the professors from Chicago
with him along with his degree.
For Jha it was not an easy
shift, but he is determined to make it work. ( Jha's family is still back in
Chicago and he keeps flying back to the US to see them.) At the innovation
centre, Jha (a master of architecture from Yale) seems to be recreating the
atmosphere of a Chicago design school. Large white boards dominate almost every
room, each covered with long lists and post-it notes. Every room is a different
project. One such room is a work-in-progress on waste, and the white boards on
the walls list out all the several 100s of items that G&B discards as
waste: metals, plastic and chemicals.
Enter Jha's room (Navroze
says very few are allowed in) and it looks like a mix between a design studio
and a warehouse.There's a touch screen that changes colour depending on hand
gestures. Beside the entrance are a couple of giant refrigerators -part of a
project to make the best in the world. An old Godrej-made office table gets
pride of place alongside some special glass imported from Germany. On his work
table (also made of factory waste) lie various discs made of compressed brass
shavings and a hand-crafted square of interlocking metallic rings with the
flexibility of cloth. As Jha sheds light on all the items lying around, he also
lets on that G&B is ready with the first radical new business idea. All he
adds is it cannot be tried out within G&B but will be incubated as a
separate company soon.
In a Cocoon of Legacy
Navroze feels this one is
just the first among many ideas in the works. Some will be put to work within
the company. A bunch of employees are already working on their own ideas at the
G&B Innovation Centre, funded by G&B, trying to produce a prototype
that can be taken ahead. It's called the Sprint programme. Navroze's efforts to
find new opportunities for G&B and, as he puts it, “ensure that we do not
lose sight of changes in industry that can make us obsolete“ are not a battle
of his own. His father and chairman of G&B, Jamshyd Godrej himself, has led
the effort to break the company out of its century-old mould.
The mould is also almost a
protective covering; it provides a financial cushion and also discourages bold
moves. Till this day G&B remains the holding company of the Godrej Group,
owned by the entire Godrej clan and some family trusts (see “Who owns How Much
of G&B“). The company, in turn, owns all the other listed Godrej entities
like Godrej Industries and Godrej Consumer Products with a total market
capitalisation of four listed entities (including Godrej Properties and
Geometric Ltd) at around `60,000 crore.
The Godrej Group, led by
Adi Godrej, 73, the eldest of the three cousins in business (brothers Adi and
Nadir, and their cousin Jamshyd), is united and yet divided in a unique way.
Adi and Nadir, 64, manage Godrej Industries and its subsidiaries. Adi's son
Pirojsha and daughters Tanya and Nisaba also work with Godrej Industries.These
companies are also known as GILAC or Godrej Industries Ltd and Associated
Companies. Jamshyd Godrej, 67, manages the holding company G&B and his son
Navroze now works there as head of strategy and innovation. Another cousin of
the senior generation, Rishad Naoroji (an environmentalist), and Jamshyd
Godrej's sister Smita Crishna are not involved in the business. The five (Adi,
Jamshyd, Nadir, Smita and Rishad) and their families hold almost equal stakes
(810% each) in G&B. The two parts of Godrej, G&B and GILAC, operate
from separate buildings. GILAC offices have moved into a spanking new building
called Godrej One.
G&B's operating
businesses remain holed up with the paraphernalia of a holding company. There
is no plan to formally restructure the group. G&B and GILAC collaborate on
specific business areas like realty and also on overall group communication
issues like branding and public relations. The working members of the Godrej
family meet every Thursday for lunch, points out Jamshyd Godrej. The younger
generation sometimes also meet among themselves and collaborate. Navroze had
worked closely with cousin Tanya Dubash for the relaunch of the Godrej brand
almost a decade back. Before that, when Navroze was initiated into the
business, he spent a week each at almost all Godrej factories and locations in
India. So nothing is disturbing this status quo in a hurry at the Godrej Group.
Adi Godrej told ET Magazine that he does not see any restructuring at G&B
“at this point“ and no change in the holding structure in “the near future“.
Jamshyd also rules out listing the company and says he can't predict the future
holding structure of the Group. He says: “There is nothing hard and fast or
cast in stone about how we do things in the future.“
With consolidated revenues
-which include revenues from Godrej Industries, Godrej Consumer Products and
Godrej Properties -exceeding `26,000 crore in 2014-15, G&B would be among
the largest unlisted manufacturing entities in India. Jamshyd Godrej points out
that being the holding company has its advantages as dividends (of some `103
crore in 2014-15) flow in. Credit rating and research agency Crisil has
upgraded G&B's long-term rating to positive from stable last August on the
back of a jump in the share prices of the subsidiary companies. (Crisil notes
that the value of G&B's holdings in group companies went up from `8,180
crore in March 31, 2011 to `24,300 crore in July 31, 2015. Since then the value
has dropped by 10%.)
In Search of Nimble Feet
and Wings
The problem with G&B
is, however, that it has just one growth engine, its consumer-facing business of
consumer durables or appliances, which bring in 31% of sales. The note by
Crisil says that while consumer durable grew at 29%, the furniture business
grew at a much more modest 10%. The fast-growing appliances business, however,
is a low-margin one. On the other hand the high margin security solutions
division saw indifferent growth and lack of orders, leading to an overall 14% growth
in the consumer facing business. The industrial products division, however,
underperformed on account of general low capital spending.
G&B has high technology
manufacturing capacities for the defence sector and also builds rocket
launchers and satellites for the Indian Space Research Organisation (ISRO).
Jamshyd Godrej points out that things move really slowly in these high-technology areas and no amount of effort by the company can get them a larger chunk
of revenue until the government machinery moves. He is no fan of the nuclear
liability law either as it stands to day (in early February, the Modi
government ratified a global regime called the Convention on Supplementary
Compensation for Nu clear Damage that gives a free pass to nuclear suppliers in
India; this makes the Indian government liable in case of an accident.
Over the last five years
(between 2010-11 and 2014-15), G &B's standalone revenues have grown at a
compounded annual rate of 10.55%, and its profits have grown even slower at 5.13%.
Growth may not be quick, G&B still operates within a comfort zone. The
Crisil report notes that the growth and margin constraints faced by G&B at
the moment are well offset by its increased financial flexibility created by
the increase in the value of its investments -mainly in Godrej Industries and
Godrej Consumer Products)
.
.
Interlinking Changes
G&B is eager to step
out of this comfort zone. For starters, it is shifting manufacturing out of
Vikhroli in Mumbai, where it owns 3,500 acres of land, to Khalapur and Pune in
Maharashtra, Dahej in Gujarat and Chandigarh. Around `4,000 crore is being
invested in new manufacturing facilities in Khalapur and Dahej. While Khalapur
will be manufacturing Interio branded furniture and forklifts, Dahej will be for
heavy process equipment. Godrej says with a shore-based plant in Dahej it will
be easier to ship these equipment than it is from the Vikhroli factory.
In ten years, if the goods
and service tax comes into force, Jamshyd Godrej sees the company having 20 manufacturing
units spread across the country. Godrej sees the consumer-facing businesses of
furniture and durables growing fast over the next few years. He is betting that
the opening up of the banking sector will create new businesses for G&B's
security solutions business.
Shifting out of Vikhroli is
also key for G&B as it converts more and more of its 3,500 acres of land
into real estate. It cannot do much with a large portion bordering the Thane
creek that, apart from having G&B's jetty for barges, also has mangroves
growing on it. “When my grandfather and father and uncle bought this land, the
intention was to preserve the mangroves,“ says Jamshyd Godrej. However, it is
slowly redeveloping the factories that stand on either side of the railway
track in Vikhroli. One such factory has just been converted and launched as a
residential project called Godrej Trees. As Godrej Properties, a company under
GILAC, develops more land at Vikhroli, it adds to the revenues of G&B.
Exports is another focus area for Jamshyd Godrej and he wants at least 25% of
the revenues to come from exports -of exports of consumer durables and
furniture -up from 14-15% at present.
On the day Jamshyd Godrej
spoke to ET Magazine, G&B announced the acquisition of an ecommerce portal
called IndiaCircus. com, which sells memorabilia and gift items designed by
artist Krshnaa Mehta. It dovetails well with G&B's Interio offering.
Historically, both sides of the Godrej Group have been circumspect acquirers
of companies, and G&B's last acquisition was a coffee dispensing business
based in Europe, more than a decade back.
It may be fair to add that
Jamshyd Godrej is taking a leaf out of Adi Godrej's book, and diversifing
G&B the same way Adi did with GILAC. “We are trying out a lot of things,“
he offers.
One of those efforts is to
take the company's products online. Navroze says that while Interio furniture
products are already available online on various ecommerce marketplaces, the
plan is to build an ecommerce platform for the company itself and take it
online some time in the latter part of 2016. He acknowledges there's some catching up to do. “We are barely scratching the surface. Aerospace and defence
technologies can have many applications. The question is how do we take our
existing business capabilities and maximise these.“
Suman Layak
|
ETM21FEB16
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