Godrej Agrovet Limited, a subsidiary of Godrej Industries Ltd , hiked its stake in Creamline Dairy Products Ltd (Creamline) by 25 percent and now has controlling stake as it earlier had 26 percent stake in the company. Creamline Dairy operates in Andhra Pradesh, Tamil Nadu, Karnataka as well as parts of Maharashtra and has a capacity of nearly seven lakh litre of milk processing a day with revenues of Rs 858 crore for the year-ended March, 2015. The products are sold under the ‘Jersey’ brand. Speaking to CNBC-TV18, Adi Godrej, chairman, Godrej Group, says the deal provides for great synergy as the company is a big player in the animal feeds business. Furthermore, Godrej says the scope for milk-based value added products in India is immense and the company hopes to become a big player in the same.
Below is the verbatim transcript of Adi Godrej’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Sonia: I just wanted to understand this Creamline Dairy business. You have gone ahead and hiked stake there, it had revenues of almost Rs 900 crore in FY15. So far how has that business done and what do you have lined up in future for this business?
A: The business is doing well and we think there is tremendous scope of growth. The value added milk business is growing very rapidly in our country and we have had a stake in this company earlier. As we are the largest manufacturers of animal feed in the country, we have a great synergy with this business. We think now that we have acquired a majority stake, we will be able to add tremendous value and have tremendous synergy with our animal feed business and use our knowledge of the consumer products business to enhance the success of this company. Latha: Do we therefore hear from the Godrej’s table more products related to dairy? Do we see you in a few years a big player in the dairy market, dairy products market? A: We certainly hope so and we certainly feel that there is tremendous opportunity.
Sonia: When you say tremendous opportunity what kind of growth are you looking at? If you can put some ballpark numbers to it, is it a 20 percent growth or 15 percent growth that you see over the next couple of years?
A: It is difficult to tell at this point of time but I think the growth will be quite considerable. It is too early to tell. We know the company well as we were shareholders but now we will be working extremely strategically on it and work with the current management to see that we put all the inputs from the Godrej Group to take it forward very rapidly.
Latha: Will it be flavoured milk, will it be butter – what kind of dairy products are you thinking of first off?
A: We will look at all opportunities in dairy products. It could be any value added milk product including things like cheese, etc. So, in time we would look at everything. Latha: How much is in time, should we hear it in FY17? A: Yes, possible. It shouldn’t take too long to workout. However, obviously in a company like that, as any FMCG company you go stage-by-stage and you have new products coming in every year.
Sonia: The reason we are probing so much is because the Agrovet business has been showing lack luster growth. Even if you look at quarter gone by, the revenues were flat, the animal feeds revenues has not been growing as well as expected. Will this slowdown continue you think?
A: That is entirely because of the two poor monsoons. As you know, the rural economy has not been doing too well. As soon as the situation in the agricultural economy of the country improves, Godrej Agrovet will get back to its very high growth rate as in the past. However, you know that we have had two bad monsoons.
Latha: I am more interested in the fact that you are entering the dairy business. Until now you were more in FMCG products, of course that gives you a great distribution but you have not been big in foods. Now we see Godrej as becoming a big food player? A: We have a food business, we have a joint venture in Godrej Agrovet with Tyson in the chicken business and value added other food businesses. This is another addition to our foods portfolio. This is to our mind is a great synergy with Godrej Agrovet’s cattle feed business because it is basically you are dealing with farmers who produce the milk, you procure the milk, you can help them improve their productivity through our very high quality animal feeds, etc and then value add to that milk.
Latha: Certainly you have a downstream and an upstream link already in that business, I agree with you, you have links with farmers, you have links with the entire retail chain to sell your products, I give you that but there will be investments in cold chains for instance that you will have to make as well as in the processing industry. What kind of money have you set aside over the next two years for capital expansion in the foods business?
A: I don’t think we will invest in a cold chain, etc because that to the extent required because there are many other diary players who are managing so I don’t think that will be a major issue. Obviously it will be first strong in the South, we will continue to develop the South first and only then branch out into the other parts of the country.
Sonia: What kind of margins do you enjoy in this milk products business? Your overall margins stand at somewhere around 14 percent or so, with a consolidation of this milk products business as well will your blended margins grow further?
A: I don’t have those figures with me.
Latha: You are giving us a headline that you are getting into the foods business, that is big, there are already couple of very big players over there like Britannia , don’t you see that as a daunting competition?
A: Not necessarily because there is regionality in it, there is a question of what kind of products you are in. It is already a successful company, profitable company growing very well and we think our coming into it will only add value, both from the R&D point of view, product point of view, marketing point of view and distribution point of view.
Latha: Will you be taking an inorganic route in the sense of buying up companies? After all this is in the foods business, there are a lot of unbranded players, do we see you taking over?
A: No, we are not looking to any further inorganic growth in the foods business at this point of time. However, if a suitable opportunity arises in the future, we will certainly look at such opportunity.
Latha: How big might the foods business be in terms of sales say two years down the line?
A: We have not worked on that yet; it is difficult to tell but I think this business will grow quite substantially.
Sonia: For now the company runs operations in just certain parts of the country – Andhra Pradesh, Tamil Nadu, Karnataka and some parts of Maharashtra. Would you at any point look at expand geographically as well?
A: Yes, we would but initially we would increase our presence in the South and then look to other parts of the country.
Latha: Since you have a very good command both over urban discretionary demand, urban consumption as well as rural consumption can you give us an idea whether things are turning around in the rural consumption area and are they improving in the urban area?
A: I think marginally. Unfortunately consumer demand in most industries is still a little slower than we would expect with a 7-7.5 percent gross domestic product (GDP) growth. We are hoping it will keep improving. We are doing quite well; as you know, in Godrej Consumer Products we have grown in double digits in terms of sales and our profit growth has been very high at high 20s and low 30s.
Latha: Godrej Industries sold 27 lakh shares in Godrej Properties to Kotak Mahindra Bank . Why were you raising this money, should we see more of it?
A: It was not to raise money. We are doing a merger of two companies in our group into Godrej Properties which would have led to the group shareholding in Godrej Properties exceeding 75 percent which as you know is not permitted. So, the merger wouldn’t have gone through until we did this.