BUSINESS SPECIAL.... A Bigger Bite

 A Bigger Bite

The RP-Sanjiv Goenka Group is expanding its snacks business in a big way. It’s part of larger efforts to wean away from the regulation-intensive power sector

Indian cricket captain Virat Kohli has just shot for a commercial for a new product while playing in England. With a sevenday gap between two test matches (August 22-30), and a famous victory in the third Test in the bag, he managed to take some time out. The new product he is endorsing is from billionaire Sanjiv Goenka’s Guiltfree Industries, and competes against PepsiCo’s Kurkure, a successful innovation by the multinational in India that created a whole new snack category and now has rivals such as ITC’s Bingo Tedhe Medhe.

Barely a year back, Kohli had declined to renew his endorsement deal with Pepsi, as he did not want to promote colas any more. A fitness enthusiast, Kohli had later announced his deal with Sanjiv Goenka’s FMCG venture that launched low-calorie baked snacks under the Too Yumm brand.

The new Kurkure-type snack that Kohli will promote comes from Goenka’s company, but this will be its first conventional snack offering.

Guiltfree’s early launches have all been innovative low-calorie snacks such as packaged fox nuts (makhana), chipsized khakhras, flavoured veggie sticks and quinoa puffs.

A brand name for the new offering is yet to be announced and the formal launch may be in October. Having established a presence across the country, Goenka is now ready to move into more conventional products and ramp up numbers.

The RP-Sanjiv Goenka Group’s (RPSG) snacks business is part of a larger FMCG foray that the company has on its drawing boards. Apart from “guilt-free snacking”, Goenka says, the company will be in a few other categories of foods. It will also enter other non-food FMCG segments.

Goenka told ET Magazine in an interview last week that the FMCG snacks business clocked around ₹43 crore worth of sales in August 2018, and is growing at 22-23% month on month. He expects to achieve annualised revenue of ₹900 crore by March 2019.

In many ways, the FMCG foray by RPSG is a continuation of efforts to reduce the reliance on the group’s core business — power generation and distribution. This includes efforts in FMCG and retail, the 2012 acquisition of BPO firm FirstSource and renewed investments into entertainment business through Saregama, which has launched a music app and has started acquiring rights to new film music after many decades.

Goenka wants to take his group of companies into areas with relatively less regulation. “I want to reduce the weightage of government-intervention intensive investments,” Goenka says.

RPSG’s revenues are likely to be around the ₹24,000-25,000 crore mark for 2018-19. Goenka wants FMCG to clock sales of ₹10,000 crore in another fourfive years, becoming a major contributor to the group’s financial muscle.

A 4-Way Split

This business will also be a crucial play, as a restructuring of the group flagship, CESC Ltd, sees three new companies getting listed. The diversified company, CESC, had started as a power distribution and generation play back in 1897. The erstwhile RPG Group under Goenka’s father Rama Prasad Goenka, had taken over the management of CESC in 1989. According to the plan, approved by the National Company Law Tribunal in March 2018, CESC’s distribution and generation businesses will be in two separate companies. The retail business (Spencer’s Retail Ltd) will become an independent company and CESC ventures will be a holding company for three new businesses — FMCG, sports and IT-enabled services business First Source. The demerger plan is awaiting further clearance from power sector regulators.

Each of the four companies will be listed separately, mirroring each other’s shareholding patterns. It will also probably help generate better valuations if the group wants to attract outside funding in new businesses.

As is often the case with promoters of diversified companies, Goenka ends up being quizzed on his sports business decisions by energy sector analysts who are also sports enthusiasts (choice of this player over that, when he had the Pune IPL franchise for two years).

Analysts, meanwhile, feel the decision to demerge CESC’s businesses into four parts is a good idea. Rupesh Sankhe, research analyst with Reliance Securities, wrote in a report on CESC on July 30: “Looking ahead, we believe that the proposed demerger — which is likely to be completed by 2QFY19 — is the key trigger for unlocking potential value.”

Goenka had said in an earlier interview that he sees himself managing situations, rather than businesses. Today he is leading the charge with the FMCG snacks foray. His son Shashwat, who heads the retail business, is also involved with the FMCG launch.

While things are a little chaotic now, and no CEO has been identified for the business, Goenka says: “At the entrepreneurial stage, a business needs junoon. It is something stronger than passion.”

Not everyone shares Goenka’s enthusiasm though. Edelweiss Securities analyst Swarnim Maheshwari said in a report dated July 27 that the group has been prone to unrelated diversifications in the past. He wrote: “The company in the past has made red-herring investments (outside its core business of power) with no synergies, but they dilute management bandwidth and, hence, pose a key risk.”

Given the skepticism in the markets, Goenka is keen to point out that success can come by faster in this sector. He says that the FMCG business isn’t capital intensive, brings in high cash flows and early profitability. Currently, the company is building a new manufacturing unit in Thimmapur in the Warangal district of Telangana. Around ₹200 crore is being invested in the plant. The company already has another unit in Hyderabad.

In July 2017, the company acquired a 70% stake in Rajkot-based Apricot Foods for some ₹300 crore. It has a manufacturing plant and a wide range of 57 packaged snacks in distribution in Gujarat. Apart from these two plants, five more manufacturing units are being used by the group to get its products manufactured across the country. The group is in talks to set up more manufacturing units — each will be set up at an investment of some ₹200 crore.

The Too Yumm brand has also reached four retail lakh outlets across the country, according to the company.

Goenka says that the growth need not be entirely organic, and talks are on for possible acquisitions of manufacturing facilities, products brands as well as distribution capacities. “Several talks are underway, but there is no point talking about them unless they happen,” Goenka says.

Patanjali Question

Goenka is expanding his FMCG business at a time when no discussion can be complete without discussing Baba Ramdev, the saffron-clad yoga guru, and the products that he has launched under the Patanjali brand. The unconventional business venture has plateaued to an extent at the ₹10,000 crore revenue level over the last year, after posting scorching growth for a few years.

Goenka points out that the growth of Guiltfree in the first year has been faster than Patanjali in its first year. “Patanjali grew very fast subsequently, but no other FMCG foods business could ramp up like we have done in the first year,” Goenka says.

He points out that hitting a beat-rate of ₹900 crore in 18 months (beat rate is latest monthly revenue multiplied by 12) is huge for him and there will be at least three more platforms of foods, apart from the low-calorie baked products platform. These will be unveiled soon.

Has the company considered entering the ayurvedic products market that Patanjali has evangelised so well in the last few years? Goenka says anyone in the space will have to consider the segment. “We will be on three more platforms that we are yet to zero in on. We are working on it and I think we will have some answers in the next few weeks,” Goenka says.

He explains how no one can be quite sure what will work and what will not in the FMCG foods business, and more products are rejected at the development stage than are launched. RPSG has a research team based out of three cities — Mumbai, Delhi and Kolkata — working on new products. “They suggested creation of multigrain chips with the dahi-papdi flavour. Personally, I felt it was a stupid idea. But it worked like magic. So you see, there is much to learn for all of us,” he says.

Incidentally, just as Patanjali wants to be in segments like jeans, Goenka is also considering an apparel business.

According to a August 14 research report by IIFL Research, titled Naturally Rural, the FMCG sector is poised for huge growth over the next seven years. The sector, estimated at $52 billion now, is expected to cross $100 billion by 2020. The rural market, now at 45% of the total, is expected to grow at breakneck speed to touch $250 billion by 2025. Premium soaps and shampoos also sell in pack sizes priced at ₹5, as does the health drink brand Horlicks.

Goenka says he is ready to play every market, and go wherever he has to. Too Yumm has products in ₹5 packs for the rural market, as well as in ₹10 and ₹20 packs for other more mature markets. The company has also just started exporting Too Yumm. Initial samples have been sent to markets like Dubai and other cities in the Middle East. He points out that Too Yumm is among the bestsellers on Amazon.

That is all Goenka is ready to say on Amazon for now, especially since there is a possibility of Amazon wooing him for a stake in his retail venture, Spencer’s Retail. But ask him if he will also seek external investment for Guiltfree, and Goenka points out that he will not need much capital for expanding his presence across the country. It can be true, especially if one can harness the magic of Virat Kohli to spread the message.

suman.layak@timesgroup.com