The Hindu Business Line : `We have no plans to exit edible oil biz despite low margins'

GODREJ Industries Ltd is on a trajectory of growth but foods business, particularly edible oil segment, is dragging the profitability of the company down. But the company has no plan to exit this business yet.

"It would have been much better if foods business were profitable. Edible oil is not a profitable business. We do not see it turning around rapidly although our processed foods division should do much better in this fiscal because of the launch of new products,'' Mr Adi Godrej, Chairman, Godrej Group, said in an interview.

Excerpts:

Could you throw light on Godrej Industries' performance for the year just ended and how is it expected to do going forward?

The company reported a 34 per cent increase in profit before interest, depreciation and tax. But profit after tax was up only 16 per cent because our interest costs in the previous year were extremely low. That's because we have a lot of dollar borrowings and the rupee had appreciated against the dollar. Our interest costs in the previous year was Rs 6 crore as opposed to Rs 26 crore in the year that just went by.

But our profit after tax in the last quarter was Rs 30 crore of the total profit of Rs 75 crore. This means that the quarter earned more than one fourth of the year's profits. The company is doing very well. We are expanding our fatty alcohol capacity by 60 per cent. It is one of the major products of the company; largely exported. That plant will come into stream by November in Walia, Gujarat.

We have also launched a number of processed foods products. We launched Xs in exotic flavours. We launched soyabean cereals under the brand Sofit. Soyabean milk under this brand is doing well.

But the most important factor for Godrej Industries is the strong performance and prospects for the companies in which it has invested. It has investments in a lot of Godrej group companies. The two subsidiaries — Godrej Agrovet and Godrej Properties — are rapidly growing businesses. Godrej Industries also owns about 13 per cent of Godrej Consumer Products Ltd (GCPL). Just the value of its investments in GCPL has risen by Rs 100 crore during the year.

Food continues to be in the red in segment profits. What is that on account of?

Well, the main part of foods business is branded edible oils. None of the edible oil companies are doing well. HLL also sold its edible oil business. Although we launched new products and we expect it would do much better, edible oils business is not a great contributor to our bottom line. Margins are low but we do not want to exit this business.

Do you see the foods business dragging the profitability of Godrej Industries down?

It would have been much better if foods business were profitable. Edible oil is not a profitable business. We do not see it turning around rapidly although our processed foods division should do much better in this fiscal because of the launch of new products. We have decided to sell edible oil only in regions where there are profits. We are not going to play the market share game in edible oil.

If your own processed foods business is growing would it mean that you have reduced processing done for others?

In our processed foods business our share of contract manufacturing has not come down though our branded business has gone up. But in GCPL, the share of contract manufacturing to revenues is coming down because other soap manufacturers are putting up their own plants in tax-free areas such as Himachal Pradesh. Besides, our share in soaps is also growing.

Within Godrej Industries would you specifically look at any businesses that could form part of the company's core business?

We would not look at any new business. Our chemicals business is growing exceedingly well. We have a 60 per cent expansion plan in our fatty alcohols business. We would also look to expand in a lot of businesses. Godrej Agrovet and Godrej Properties are the fastest growing businesses in the Godrej Group.

You have the expertise in developing properties. Would you look at retail?

We do develop retail property but as part of larger projects. We are in rural retailing in Godrej Agrovet and we are expanding that business in a big way. That is a big expansion opportunity for us. But we are not into urban retailing. We have one retail model called Nature's Basket which ties up with our rural retailing. We opened our first store in Warden Road, Mumbai. It is doing extremely and we are expanding that. We sell only fruits and vegetables sourced from our rural retailing outlets called Aadhaar. We have 14 Aadhaars in six States but it is not the conventional retail model.

Do you think Godrej Agrovet and Godrej Properties could be candidates for public listing?

May be in the future as the need for funds arises, public listing could be possible. But we do not have any plans now. As the growth in these businesses are strong needs for capital infusion would be higher. Both the property development market and the rural retail market will grow very rapidly. Our share of the respective markets is very tiny.

In animal feeds business we have a turnover of Rs 600-700 crore but our share in the total market of the country is very small. If you have a small share of the total market, the opportunities for expansion are much larger. Similarly, Godrej Properties does a lot of property development but as a share of the total property development in the country it is a small share. Therefore, scope for growth is very strong. I also see good growth in our other businesses such as furniture, FMCG and chemicals.

Would you look at FDI in property development?

We will look at FDI opportunity if necessary. It is good to have opportunities but no plans as of now.

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