Outlook business april 28 2018

April 27, 2018 l #50 www.outlookbusiness.com

8 904150 800041

09

FASTEST GROWING COMPANIES

DILIP BUILDCON | TIGER LOGISTICS | CMI | INDIAN TERRAIN GUFIC BIOSCIENCES | CHAMAN LAL SETIA EXPORTS | AVANTI FEEDS

| EDITOR’S NOTE |

Lonely at the top The past five years have been enormously challenging for Indian businesses. It’s been chaotic — alongside policy changes, the economic environment has been dampened by demand destruction, oversupply, cash crunch, cost pressure and all kinds of issues. The result: there has been a deterioration in the performance of companies of all shapes and sizes.

Ironically, ever since the fi rst year (2012) when we started the exercise of identifying fastest growing companies, the list has consistently shrunk. To make it to the Outlook Business Fastest Growing Companies shortlist, a company should have clocked sales and net profit of 20% compounded annually over the past five years, a debt-equity of less than 2x and a return on capital employed of over 15% in each of the past five years, demonstrating consistently good quality of earnings. Five years ago, there were more than 40 companies that boasted a growth of over 25% compounded over the previous five-year period, along with the other criteria. This year, even with a lower growth threshold, the list comprised only 14 companies.

Of these, the seven companies we have profiled this year are an eclectic mix. If Avanti Feeds has seen a huge surge in profit thanks to the jump in shrimp exports, Chaman Lal

Setia, a family-owned enterprise, has seen its basmati rice exports gallop with the next generation coming on board. Ditto for Gufic Biosciences, where the next gen has altered the company's growth trajectory. Then, EPC contractor Dilip Buildcon has not only kept its head above water, but also managed to swim through turbulent times when most other infra players have drowned in debt. Indian Terrain is a home-grown brand success, while Tiger Logistics is riding the wave in a growing sector and so is CMI. Now, after the fi fth edition we are wondering how many companies will show up next year, considering the slow pace of economic growth. In all likelihood, we have to temper our expectation and redefine what can be termed as “fastest” to align with the new normal, or take a break, till the economy turns vibrant enough for companies to flourish and meet our stringent criteria.

N Mahalakshmi

www.outlookbusiness.com | email: mahalakshmi@outlookindia.com Outlook BUSINESS / 27 April 2018

3

Contents

Volume 13, Issue 9, April 27, 2018 | Released on stands on April 13, 2018

COVER STORY

FASTEST GROWING COMPANIES In a year that was challenging, Outlook Business takes a look at seven companies that outran the storm

18 Dilip Buildcon: Promoter Dilip Suryavanshi has gone from strength to strength at a time when several in the infra space have fallen from grace

4

30 Tiger Logistics: Founded by a doughty first-generation entrepreneur, it is investing in technology and venturing into new geographies

17 REGULARS 10 View: Robosoft’s Lakshmipathy Bhat believes that for advertising to work, a brand needs to have the central role in a compelling story 12 Imagenation: By bagging domestic cricket rights for another five years, Star India now has an iron grip over India’s biggest sport 14 Graphically Speaking: How artificial intelligence just might replace you at your workplace!

27 April 2018 / Outlook BUSINESS

40 CMI: This cable maker is confident of sustaining its stunning growth by filling up its newly acquired plant with orders from institutional clients

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Contents www.outlookbusiness.com Editor: N Mahalakshmi Executive Editors: Rajesh Padmashali, V Keshavdev FEATURES Deputy Editors: Kripa Mahalingam, Krishna Gopalan Assistant Editors: Himanshu Kakkar, Jash Kriplani Senior Correspondents: Laveena Iyer, Shruti Venkatesh Correspondents: Khushboo Balani, Prathamesh Mulye, Shilpa Elizabeth Abraham COPY DESK Sub-Editor: Somdyuti Datta Ray Trainee Sub-Editor: Bhakti Tambe

46 Indian Terrain: This first-mover homegrown men’s apparel brand has made its mark in the premium casual wear segment

76 Avanti Feeds: A boom in the shrimps feed business has catapulted it off the charts. Can it sustain its riproaring growth in the years to come?

C’est la vie

83

6

ART Chief Designer: Kishore Das Design Trainee: Pallabi Sutar PHOTO Photo Editor: Soumik Kar Chief Photographer: RA Chandroo Principal Photographer: Vishal Koul Photo Assistant: Ram Dharne Consultant: Rashmi Shinde BUSINESS OFFICE Chief Executive Officer: Indranil Roy Publisher: Vidya Menon Vice Presidents: Bindu Dhawan, Meenakshi Akash, Prashanth Nair Senior General Managers: Preeti Sharma (North), V Sridhar (South) Digital Team: Amit Mishra CIRCULATION & SUBSCRIPTIONS Rajkumar Mitra, Anindya Banerjee G Ramesh (South), Vinod Kumar (North) Arun Kumar Jha (East) Shekhar Suvarna

60 Gufic Biosciences: A focused strategy built on its core competency has led to the revival of this pharmaceutical company

84 84 Pursuit of Happiness: Cirque du Soleil’s Stefan Haves on why making people laugh is a serious task!

86 Hardbound: Brand Building’s Ambi Parameswaran reviews The Content Trap by Bharat Anand 88 Good Life: These handwoven and high-end rugs are the perfect addition to your home décor 66 Chaman Lal Setia: How the new generation is raking it in with their aggressive approach at the Gurgaonbased rice exporter 27 April 2018 / Outlook BUSINESS

90 High Five: Quess Corp’s Ajit Isaac on how to create a culture of empowerment at the workplace

PRODUCTION General Manager: Shashank Dixit Chief Manager: Shekhar Pandey Manager: Sudha Sharma ACCOUNTS Assistant General Manager: Diwan Singh Bisht Company Secretary & Law Officer: Ankit Mangal HEAD OFFICE AB-10, Safdarjung Enclave, New Delhi 110029; Tel: (011) 33505500; Fax: (011) 26191420 Customer Care: (011) 33505533, 33505607 Fax: (011) 26191420 Mumbai: (022) 33545000, Fax: (022) 33545100; Kolkata: (033) 46004506, Fax: (033) 46004506, Chennai: (044) 42615225, 42615224 Fax: (044) 42615095 Bengaluru: (080) 43715021 Printed and published by Indranil Roy on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: N Mahalakshmi. Printed at Kalajyothi Process Pvt. Ltd., Plot No. W-17 & W-18, MIDC, Taloja, Navi Mumbai- 410208 and published from AB-10 Safdarjung Enclave, New Delhi 110029 Published for 14-27 April 2018 Total number of pages: 88 + cover

| VOICES |

“Things go well when things are good. But once things start going wrong, then it keeps going wrong

“The Fourth Industrial Revolution is not going to take part in industry, it is going to take part in burning cars in the street

Toshiba CEO Nobuaki Kurumatani promising a turnaround for the scandal hit electronics company

Joe Kaeser, CEO, Siemens, on why disruption of jobs by technology could lead to social upheaval

“The impact is very obvious. It’s going to create a Chinese Trojan Horse in Europe Carlos Tavares, chairman, Groupe PSA, on EU's 2020 CO2 goals which will allow in Chinese electric vehicle makers

8

“Sell your boat, sell your car, sell your house, buy Harvey Norman Gerry Harvey, chairman, Harvey Norman, expressing his disappointent about investor reaction over latest earnings

27 April 2018 / Outlook BUSINESS

“I do not ask for forgiveness — I just want to see this end as soon as possible so everyone, myself included, can get some closure Mark Karpeles, former CEO of now defunct Mt. Gox, on the bitcoin exchange's fiasco

view | STRATEGY |

LAKSHMIPATHY BHAT Vice president, marketing communications, Robosoft Technologies

Do all brands have a compelling story to tell?

OVER TIME, CONSUMERS HAVE FOUND WAYS TO IGNORE BRANDING AND TO KEEP THEM INTERESTED, ADS NEED TO BE RELEVANT

F

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or many in today’s marketing world, it is fashionable to believe that advertising is anything-but-advertising. Some of the recurring points in this theme are: advertising as we know it is dead, advertising today is all about ‘conversations’ with consumers and that consumer is in control (I am not clear of what exactly).

Another popular theme is that advertising is all about ‘storytelling’ now. All these are lapped up by trade media, get written about and discussed in industry events.

In my view, the fundamentals of marketing and communication have remained unchanged since the birth of advertising as a profession. Bill Bernbach said: ‘It is fashionable to talk about changing man. A communicator must be concerned with unchanging man, with his obsessive drive to survive, to be admired, to succeed, to love, to take care of his own’. Consumers have always seen advertising as an interruption.

It is not a new phenomenon discovered by markets of today. In the 1950s, ad man Howard Gossage said ‘people don’t read ads, people read what interests them. Sometimes it is an ad’. Over the years, advertisers, in their quest for consumer attention, have placed ads in more intrusive fashion. The explosion of media options — print, TV, outdoor, radio, web, social media, apps and more have made it more challenging for commercial messages to be noticed. In India, we have whinged about TV stations cutting away to an ad just as the last ball is bowled in an over of a 27 April 2018 / Outlook BUSINESS

cricket telecast, for years. The front page ad in a newspaper has been disliked by many — not to mention the various pull outs and odd shapes covering the main news in a daily.

On the web, advertisers not just practice but favour intrusive ads; the digital agencies are challenged to come up with newer ways of getting the commercial message upfront and in-your-face of the consumer.

Page take-overs, annoying pop-ups, auto-playing video ads, slider banners are examples of such ‘innovation’. What the digital world has done is simply give the average consumer a better chance of blocking such intrusive messages through adblockers. The popularity

of ad-free streaming services like Netflix, Prime and Hotstar also indicate that consumers prefer a non-intrusive entertainment experience.

Does all this mean that people do not like any advertising? My personal view is that people have found a way to ‘manage’ advertising over the years: they simply ignore them. People understand that advertising is a necessity for media brands — there is no way to do away with it completely in mass media. That’s the reason why most consumer reaction to advertising is just passive — advertising becomes mostly white noise. Surveys tell us that too — most ads are simply ignored… they go un-noticed. In that environment very few ads stand out, get noticed and appreciated. Such ads have high repeat value, are enjoyed & shared (when possible — like in social media) or talked about (marketers call it ‘story making’ — the phenomenon of consumers advocating a brand ‘experience’).

In the 90 s when a commercial aired on media was liked I am sure people talked about it among friends and media wrote about such occasionally. I recall many ads from the non-digital era which would have been viral in today’s context: Dhara’s ‘ jalebi’, Hero Honda’s ‘Fill it, Shut it, Forget it’, Amul’s ‘Doodh, doodh…, VIP ’s Kal bhi, aaj bhi ad, ‘Mile sur mera tumhara, Bajaj’s ‘Yeh zameen yeh aasman…’ and many more. These were ads genuinely liked by viewers and talked about; if they had social media back then I am sure these would have been shared. So the point simply is that people liking a minuscule set of ads (while ignoring a majority) and talking about them is not a new phenomenon.

As far as consumers and brand having a conversation with each other, that is just bullshit. In the digital world, consumers are in a position to respond to brand communication with immediate feedback. They are also able to seek customer support or complain through social media channels. Other means by which brands ‘interact’ with customers are through contests and topical communication. These can hardly be called ‘conversations’.

In the modern marketing context, it is made out as if ‘story telling’ is a new necessity borne out of consumers who now have the power to skip ads. But telling a good story has always been one of the many routes adopted by ad agencies to sell a brand. Admittedly not all ads have a good story. And even among good ads, ‘story telling’ is not a mandatory ‘route’ to take. Story telling in an ad is when it has a plot, characters and a role for

the advertised brand. A good example would be the ad for Google Search from 2013. Couple of other examples which come to mind: The Power of Wind by Epuron and Justino for Spanish lottery But do all brands have a compelling story to tell? I think not. It is very difficult to create a story around mundane everyday brands (e.g a toilet paper or a dish washer brand). Even if it is a story well told, if the role of the brand is tenuous, to me, it is still not a good ‘story’. More then compelling, what the ad needs to deliver is relevance.

George Tannebaum’s comment on storytelling is so apt: But our business, in its aggressive dumbing-down of most everything, has taken the term story-telling and applied it to nearly everything. There are a few brands, in fact, who can really tell stories. I am lucky enough to work on one of them. Nike is another one. There aren’t many more. In fact, the likelihood of anyone finding a story about new, extra-strength Saran Wrap compelling just ain’t going to happen.

Advertising is meant to sell.

It has to create a preference for the advertised brand over competition. In this context, a story based approach to advertising works only if the story is compelling, relevant to the brand or category, well told and most importantly, the brand fi nds a central role. Very often in such advertising we find that the ad has a tenuous or no role to play. At least with other ‘techniques’ used in advertising – a product demo, problem-solution and so on, the advertised product is central to the narrative style.

Corporate brands though, have a better chance of telling a compelling story about themselves. Why so?

In corporate brand advertising, the objective is still to create preference for one brand over another. But either in the B2C or B2B categories, brands get several shots at it across content and over time. Moreover, they have several aspects of their brand – history, values & ethics, people expertise, processes and more to anchor their stories on. Every piece of communication has to add to the overall objective of creating an aura about the corporate without having to directly sell every time. Of course not every organisation has a compelling talking point. Just as parity products are common in consumer products, parity or near-parity offerings are common in corporate brands too, especially in B2B services. b THE WRITER BLOGS ABOUT ADVERTISING, BRANDING AND MARKETING STRATEGY AT BHATNATURALLY.COM AND TWEETS @BHATNATURALLY

People understand that advertising is a necessity for media brands and they have found a way to ‘manage’ it over the years : they simply ignore it

Outlook BUSINESS / 27 April 2018

11

| IMAGENATION |

12

27 April 2018 / Outlook BUSINESS

Captive eye Star India is now the undisputed king of Indian cricket broadcast. The Walt Disney Company-owned media behemoth pipped Sony Pictures Network and Reliance Jio Infocomm by retaining the television and digital broadcast of international and domestic cricket matches in the country for the next five years (2018 -2023) by shelling out #6,138 crore.

Star now owns all the cricket properties in a nation where the sport unites like no other religion. The winning bid is 60% higher than the #3,850 crore that it had paid for the five-year rights ending March 2018. According to reports, the BCCI will get an average of #60 crore per game against #43 crore in the previous deal. Star will air 102 international matches over the five-year period against 96 earlier.

Last year, Star had also paid a massive $2.55 billion for five-year media rights of the IPL Twenty 20 tournament beginning 2018. From a viewership of over 100 million in 2008, last year’s edition of IPL garnered over 400 million viewers even as ad revenue took off from #400 crore to #1,300 crore over the same period. Not surprising that Star was keen not to miss the bus, when the IPL rights, then owned by Sony, came up for grabs. Besides its stranglehold on Indian cricket, Star also bought the broadcast rights for ICC’s international tournaments from 2015 -23, paying up $1.9 billion in 2014. The eight-year period contains 18 ICC tournaments, which include two World Cups in 2019 and 2023, Champions Trophy in 2021, and World T20s in 2020. b

AP 13

Outlook BUSINESS / 27 April 2018

| GRAPHICALLY SPEAKING |

The hands that build

Industrial robots per 10,000 employees in the manufacturing sector.

India ranks low on use of robots on shopfloors

488 303 223

211

189

185 74

3

India

Denmark

Singapore

Sweden

United States

Japan

Italy

Source: International Federation of Robotics

3,500 2018

14 2,065 2015

Slow and steady

6,000 2020

Robotic installations in the manufacturing sector across India is rising steadily, even though the base is still small

Net additions

217,000 FY15

203,000 FY16

175,000 FY17 Source: Nasscom

Fire more than hire

The net hiring in the IT sector has been going down over the past three years, driven by changing business dynamics 27 April 2018 / Outlook BUSINESS

World average

631

309 184

Belgium

Germany

South Korea

10%-20% / 60%-65% / 20%-35%

15%-20% / 55%-60% / 20%-25%

5%-10% / 50%-55% / 10%-15%

5%-10% / 20%-25% / 15%-20%

5%-10% / 35%-40% / 15%-20%

9% / 37% / 54%

Do or die

How India’s workforce is likely to make the transition Would be deployed in new jobs that do not exist today Would be deployed in jobs that have radically changed skill sets Will face an existential threat to their jobs

Source: Future of jobs in India — A 2022 perspective report

MAKE WAY FOR THE MACHINES T

he new age of automation and technological advances is all set to alter job profi les across various sectors in India. A recent report, Future of Jobs in India — a 2022 Perspective claims that a considerable amount of jobs could face an existential threat over the next five years. By 2022, owing to the adoption of exponential technologies, 9% of the workforce would be deployed in new jobs that do not exist today in the organised sector, and 37% would be deployed in jobs that would have radically changed skill sets.

The 2017 World Robot Statistics, issued by the International Federation of Robotics, states that currently in India, there are three robots installed in INFOGRAPHICS: KISHORE DAS

the manufacturing industry per 10,000 employees, which is below the world average of 74. The report predicts that robot installations will increase from 2,065 units in 2015 to 6,000 units in 2022.

While new job opportunities in the IT industry are emerging, net hiring has taken a hit. According to a Nasscom report, net hiring in the IT sector has gone down from 203,000 in FY16 to 175,000 in FY17. By 2022, the Future of Jobs in India report predicts that job roles such as voice-based services (call centre agents), data entry operators, document processing, system administrators may soon become automated. Looks like, India’s machine over man reality could be here sooner than one thinks. b Outlook BUSINESS / 27 April 2018

15

| FOREIGN POSTS |

DEBT TRAVAILS

On a high note

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Spotify, the Swedish music company, has found its worth by directly listing on the New York Stock Exchange, sans the help of investment bankers. The streaming music major listed at $165, valuing it at $30 billion. The Stockholmbased company, which started streaming music online in 2008, earned $5 billion in 2017 revenue from premium subscriptions and advertising revenue.

Its subscription-based model has 157 million active monthly users of which, 71 millions are paid subscribers. This audio-first platform is currently available in 65 countries and incurred a loss of $1.5 billion last year as it continues to offer free ad-supported streaming access to non-paying users. Since it has to pay royalty per-stream and per-song, it loses money on such users. However, Spotify has a significant lead over Apple Music, which has 38 million paid subscribers. While for now analyst expectations have been surpassed, the question is: can Spotify continue to stream some cool numbers?

ROYAL FINE

£12,000 — is the penalty amount United Kingdom’s parcel delivery service Royal Mail will have to pay for being a nuisance. Last year, the company sent e-mails to 327, 014 people who had opted out of service regarding fall in cost of posting parcels. This, according to the Information Commissioner’s Office (ICO), is a serious offense. Royal Mail broke the law when it sent the emails to recipients without their permission. IPO believes that rules need to serve their purpose— to protect people from the irritation and distress over nuisance emails. In its defence, Royal Mail has apologised to all its customers with a promise to make its staff much more-responsive.

27 April 2018 / Outlook BUSINESS

On April fool’s day, Elon Musk jokingly tweeted about Tesla’s bankruptcy. But analysts fear the joke could turn out to be true. In the midst of rolling out its mass-market Model 3 EV and dealing with a fatal car crash of its Model X, the company now faces the prospect of taking on a debt of $2.6 billion after the acquisition of SolarCity.

To make things worse, rating agency Moody’s has downgraded Tesla’s rating six levels below to B3 last week.

But the maverick entrepreneur is far from perturbed as he has now set his sights on transporting humans to Mars.

CRUDE DISPUTE

The Libyan Investment Authority (LIA), an oil wealth fund set up by Libya’s former dictator Muammar Gaddafi, has filed a lawsuit against JP Morgan Chase alleging ‘commercial fraud’. A Bloomberg report states that three more banks — Commerzbank, Credit Suisse and BNP Paribas might be in LIA’s firing line. The LIA has had mixed results in its lawsuits against western investment banks – it lost its case against Goldman Sachs but was successful in getting SocGen to cough up a €billion.

India’s Fastest Growing Companies

F

Y18 was great for the market but the same cannot be said for corporate earnings. In a year when the benchmark indices touched an all-time high, an earnings recovery could only be seen in analyst estimates. Still, there were a bunch of companies who have managed to notch up a commendable performance, year after year. The Fastest Growing Companies edition tries to figure out how these companies managed what they did.

Like in the past, we started off with all companies (excluding banks and financial companies) listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) having a net sales and market capitalisation of above 100 crore. The companies that made the cut were then subject to a growth filter of 20% compounded for sales and profit for the past five years (FY13 to FY18).

For the final year, trailing twelve months ending December 31, 2017 was taken into consideration, given availability of data till 9MFY18. For Decemberending companies, the time period considered was CY13 to CY17. Apart from the revenue and profit growth filters, the companies also needed to have a return on capital employed of over 15% in every year over the same period and a debt-equity ratio of less than 2X in FY18 /CY17.

From the final shortlist, we have profiled a motley bunch. We hope you enjoy reading each one of them. b Outlook BUSINESS / 27 April 2018

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FASTEST GROWING COMPANIES

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To grow our business, we had to step out. There was only so much we could do in Madhya Pradesh —DILIP SURYAVANSHI [RIGHT] Chairman, Dilip Buildcon With DEVENDRA

JAIN, CEO, Dilip Buildcon

27 April 2018 / Outlook BUSINESS

VISHAL KOUL

Offbeat road-builders Dilip Buildcon’s success has come on the back of executing projects outside its home state and sticking to EPC projects

Sales (5-year CAGR, %) — 29 NET PROFIT (5-year CAGR, %) — 26 ROCE (5-year AVERAGE, %) — 25

Outlook BUSINESS / 27 April 2018

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FASTEST GROWING COMPANIES Krishna Gopalan

A

remark made by his mother when he was barely a teenager still brings a smile to Dilip Suryavanshi’s face. His father was in the police department and the family had to undergo the torture of him being transferred almost every other year. The challenge of getting the children into new schools and adjusting to a new environment meant Suryavanshi’s mother eventually ran out of patience. “Khud, kuch karo,” Janaki Devi would often snap in frustration. “I don’t think she advised me to start my own business but that’s what I ended up doing. There was no joy in working for someone,” says the 61-year-old, who today is the chairman and managing director of Bhopal-based Dilip Buildcon.

The company has stuck to its core business of EPC (engineering, procurement and construction) road development steadfastly and it is a decision that has paid off. From the time it was incorporated in 1987, it has laid 15,000 kilometres of roads in India, with 8,000 km having been completed in just the past five years. The order

20

book at the end of the third quarter of FY18 stood at #15,500 crore and with some big wins in March, it is expected to close the year at #28,000 crore, or 4x FY18 projected revenue.

That has reflected in the way the stock price, too, has moved. After listing in August 2016 at #219, it quotes at #1,150 today. Naval Totla, managing director of BanyanTree Finance, a private equity fund, that invested in Dilip Buildcon in 2012, says the management marries the right combination of caution and aggression. “Sticking to road construction was a smart thing to do. They have got better at it and improved their execution capabilities, which has resulted in taking on larger projects successfully,” he says. This has gone a long way in Dilip Buildcon’s revenue increasing from #233 crore in FY10 to #5,320 crore in FY17. For 9MFY18, standalone revenue was #5,190 crore.

the larger player. Rohan, Suryavanshi’s son, then a 20 -year-old, recalls his father being smitten by Mumbai’s tall buildings and promising the youngster that he would one day take him to the city. Recalling the story with a laugh, Rohan says the project gave the company confidence to take on bigger challenges.

When the team convened for the strategy meeting, the company had an order book of #100 crore. “We set a very stiff target of having a #1,000 crore order book

by FY10,” says Suryavanshi.

That target was achieved. But Suryavanshi, by then, was convinced that the company had to change its strategy. It had to reduce the proportion of private contracts, which was well in excess of 80% of the order book. The company was still the EPC contractor for the likes of Sadbhav Engineering, Ashok Buildcon and Essel Infraprojects.

“We were doubling our revenue each year because of the private sector. What struck us as strange was that many of them were making money without really having the expertise. It was only because of easy access to cash, and every player, irrespective of competence, just jumped into the business,” he explains.

“We learnt a lot about road construction during this phase and realised that success here depended greatly on the extent to which one had control over raw materials,” says Suryavanshi.

By 2012, the private sector pipeline had slowed down.

The government’s inability to push through key issues such as environmental clearances, land acquisition and the economy slowing down, meant many of the feisty and ambitious folks were now in limbo. This is when Suryavanshi decided to change tack and look outside the private sector for growth opportunities.

Since its incorporation in 1987, Dilip Buildcon has laid 15,000 kilometres of roads, with 8,000 km having been completed in just the past five years

BIG DREAMS In early 2007, the top brass at Dilip Buildcon sat down for a strategic meeting. It had been just over a year since the company had worked with Mumbai-based Valecha Engineering to construct a part of the #80 crore Ashta-Kannod road project in Madhya Pradesh.

It was a 80 km project and the first time that Dilip Buildcon had taken on a project on its own, with Valecha receiving only a fee. Dilip Buildcon needed a partner since they did not have the experience to meet the requirement of taking on the project on their own.

Thus far, the company had only been working as an EPC contractor to private players.

Suryavanshi travelled to Mumbai on a few occasions to thrash out the deal with Valecha, who would then lead the Ashta-Kannod project by virtue of being 27 April 2018 / Outlook BUSINESS

FASTEST GROWING COMPANIES Suryavanshi decided to push aggressively for more government orders, which in FY12,made up just 17% of his order book. In FY14, that surged to 61%. “Today, at least 95% of our order book is government road construction projects,” says Rohan, who heads strategy and planning for Dilip Buildcon.

BRANCHING OUT It was in early 2012 that BanyanTree invested #75 crore for close to a 10% stake in the company. “Infrastructure was not a great place to deploy your money. We were impressed with their ability to execute well,” recalls Totla. The low level of leverage also struck the right chord with him. According to him, what they liked the most was the management’s willingness to listen to the investor. “We asked them to stay out of BOT (build-operate-transfer) projects and focus on the working capital cycle,” says Totla. Several companies that went into BOT projects — where the private player lines up funding and makes money through a fee from the government or through toll revenue — had landed up with huge debt, and were looking to get back to EPC where the money comes in upfront. In August 2016,

22

Visible growth

Dilip Buildcon’s revenue growth is protected by its strong order book

when the company went public, BanyanTree exited its investment pocketing a 3x return.

If avoiding BOT projects saved Dilip Buildcon from sinking like other rivals, Suryavanshi’s second strategic decision to look for projects outside the home state of Madhya Pradesh laid the growth path. In 2009, the company completed its fi rst road project in Himachal Pradesh, in a joint venture with Valecha, which was its breakthrough. This was followed by some smaller projects and it was in 2011 that the company was chosen to build the AhmedabadGodhra road in Gujarat. “To grow our business, we had to step out. There was only so much we could do in MP,” says Suryavanshi, though the home state, even in 2011, contributed well over 60% of the order book. Dilip Buildcon is known to be close to the powers that be in the state, though the management refuses to talk about it. “To diversify across states requires courage — it’s not easy. Most companies would rather stay back in the home state and make the most of their strengths,” says Totla.

Sandeep Raina, associate director (research), Edelweiss, too, gives credit to the company’s foresight to look at new markets; today, no more than 10% of the order book is from Madhya Pradesh with the company now having projects across 17 states. “Except L&T, no other infrastructure company in India has a presence that is geographically so diverse. It was important for Dilip Buildcon to do this, since being in one state would not have given them the scale,” he says. The company

Project cost in # crore

U Uttar Pradesh

Northern Coalfields Nigahi Open Cast 1,674

M Madhya P Pradesh

NHAI Sangli-Solapur (Package IV Section of NH-166) 1,047

NHAI Sangli-Solapur (Package II Section of NH-166) 9,471 NHAI Nidagatta-Mysore 1,826 27 April 2018 / Outlook BUSINESS

NHAI Chandrikhole-Bhadrak Phase V 1,160 Odisha

NHAI Maharashtra Sangli-Solapur (Package I Section of NH-166) 1,012 Karnataka

Telangana A Andhra Pra Pradesh

DBL Lucknow Sultanpur Highways Lucknow-Sultanpur 1,780

Singareni Collieries Company Overburden Khairagura 974

NHAI Anandapuram-PendurthiAnakapalli section of NH5 1,596 NHAI Bengaluru-Nidagatta 1,750 Source: Company

Concrete growth

Dilip Buildcon has grown consistently, but return on capital has dropped due to capex incurred ~ Crore

Net sales

Net profit

ROCE (%)

97

165

233

437

1,190

1,919

2,384

2,762

4,300

8

9

19

37

111

192

238

81

230

358

23.74 26.55 18.32 24.24

30.28

30.28

19.93

13.82

17.94

17.64

FY08

FY12

FY13

FY14

FY15

FY16

FY09

FY10

FY11

5,319

FY17 Source: Ace Equity, company

has recently won orders in states such as Karnataka, Jharkhand, Andhra Pradesh, Uttar Pradesh, Maharashtra and Odisha, with just one project coming from Madhya Pradesh. “This is hugely beneficial to curtail revenue risk in a year, when there will be elections in two to three major states and eventually the general elections. A high order book will help the company in sweating the existing machinery base,” he adds.

GETTING IT RIGHT Doing things differently has helped Dilip Buildcon in registering higher margins. At a time when its peers such as KNR Constructions and PNC Infratech have Ebitda margins of around 15%,it earns at least 300 basis points higher. There are a few strategic reasons for this sizeable difference.

Devendra Jain, Dilip Buildcon’s CEO, points out that the decision to not have sub-contractors alone leads to 1-2% higher Ebitda margin. This leads to a greater control over the process as it employs its own staff across locations in India.

“We have noticed how other companies depend a lot on sub-contractors. That eats into the project time and we believe it is not an efficient way of working,” he says.

Raina says an end-to-end control on execution helps the company complete projects well in advance. “That leads to an early completion bonus, which goes directly to the bottomline,” he says. Last year, the bonus earned was to the extent of #106 crore, with this year expected to be around the same number. “Over the past five years, we have earned #320 crore just by way of bonus,” chips in Rohan. That component goes on to add another 1-2% to

the Ebitda margin. “Because of zero sub-contracting, there are no quality issues,” adds Rohan.

Having control over execution also means the company owns a large fleet of equipment and vehicles (about 10,000), with names such as Caterpillar for excavators and Ashok Leyland for trucks. Jain says placing orders of this size ensures getting good rates and a commitment with respect to service. “That translates to significant economies of scale, which with discount at the time of purchase would add around 2% to the bottomline,” he says. According to him, the company, on a full-time basis, employs 19,000 drivers and another 30,000 employees at various levels.

Suryavanshi continues to demonstrate high levels of ambition and says he wants a larger piece of the infrastructure pie. Jain terms it as being a full service infrastructure player, with intentions to look at areas such as dam construction, canals and railway infrastructure.

“We would like to be wherever there is road construction in any form. According to him, the strategy is to have co-location projects, which means laying the road and also looking for another opportunity. For in# stance, in 2016, the company bagged a contract from the government to construct a 640 metre eight-lane bridge across the Zuari river in Goa. This #550 crore contract comes with the approach of road connectivity, which in all, adds up to #1,600 crore. “The objective is to sweat our machinery to the maximum extent possible,” he says.

According to Totla, at the time of putting in a bid for a new project, Dilip Buildcon does elaborate research on the location to understand the topography. “That

End-to-end control on execution helps Dilip Buildcon complete projects in advance. Over the past five years, it has earned early completion bonus of 320 crore

Outlook BUSINESS / 27 April 2018

23

FASTEST GROWING COMPANIES It was important for Dilip Buildcon to diversify, since being in one state would not have given them the scale

Raising capital will be a concern as investors will become cautious when nearing the pre-general election phase

—SANDEEP RAINA

—AJAY GARG Managing director, Equirus

Associate director (research), Edelweiss

kind of location scanning gives them a clear picture of how long it would take to complete the project,” Totla says. Jain says every equipment is attached with a GPS, which tracks everything from the life of the tyre to how much fuel a truck consumes. “You need that kind of cost obsession to make it work in a business like this.”

THE ROAD AHEAD EPC will continue to be the bread and butter for the

24

company and that became evident when it sold its entire BOT portfolio of 24 road projects (14 operational, four under-construction and six hybrid annuity model, referred to as HAM) in August last year to the Shrem Group for #1,600 crore. Suryavanshi says Dilip Buildcon was looking to exit for a while. “It’s not as if we are against BOT projects but the lack of revenue certainty makes us uncomfortable. We decided it did not make sense to hold on,” he explains. This will reduce the debt on Dilip Buildcon’s balance sheet, which took off sharply from #764 crore in FY14 to #1,573 crore the following year, #1,760 crore in FY16 and # 2,236 crore in FY17. Jain says this was capex that went into investing in new machinery.

As a consequence, depreciation and interest costs, too, increased, most prominently in FY15 and pulled down net profit. The RoCE also took a beating in the same period. According to Raina, the RoCE dropped due to the capex investments the company made in equipment and machinery to grow quickly. A majority of these investments started in FY13 and the RoCE then started falling since then to reach a low of 13.8% in FY15 against 30.2% in FY13. “However, due to high growth and sweating of existing investments, the RoCE , since then, has improved and we expect it to reach 25% in FY20,” he says.

According to Raina, the deal with Shrem will help the company earn the required capital to chase higher growth. “There will not be much pressure on its balance sheet as well. Selling old projects allows the management to focus and grow the high-margin EPC business,” he says.

While the company is steering clear of BOT,it is slowly taking on HAM projects. Under HAM, the National Highways Authority of India releases 40% of the project cost, while the other 60% is brought in by the road developer. The model spreads the risk between the government and the developer. “It is a good model but we are concerned about how much debt it will entail.

It offers a safe flow of revenue with money coming in every six months,” says Jain.

He remains confident that revenue will continue to grow by 25 -30% annually for the next three years at least. “Just the size of the order book will take care of this. There are enough opportunities in each of the states that we operate in,” says Jain. According to him, related infrastructure opportunities will be identified at the same time. “If we continue to do what we are doing and make the best use of our assets, the margins, too, will sustain,” he adds.

Ajay Garg, managing director, Equirus Capital says the order-book-to-bill ratio of most players is in the range of 2.5x to 4x and with aggressive awarding of HAM projects, this ratio will increase further.

“That will mean higher # revenue visibility over the next two to three years,” he adds. That, however, is not devoid of challenges and Garg points to the timely execution of the order book as being one of them. “This means availability of labour, material, sufficient management bandwidth and project management staff will be critical,” he points out. That apart, raising necessary capital is another concern. “That is a function of market condition and investor sentiment at that point in time. Investors will become cautious as we near the pre-general election phase (post-November 2018).”

In the time to come, the thrust on EPC will continue for the company and with the government speaking of the Bharatmala project to develop close to 84,000 km of roads at an investment of #692,000 crore, there is a lot to look forward to for those in the industry. How Dilip Buildcon manages to make the most of that will determine the next stage of growth. b

EPC will continue to be the bread and butter for Dilip Buildcon and that became evident when it sold its entire BOT portfolio of 24 projects last year for 1,600 crore

27 April 2018 / Outlook BUSINESS

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FASTEST GROWING COMPANIES

30

India is a country where a lot of disruption takes place and you cannot depend on a particular vertical or region to grow —HARPREET SINGH MALHOTRA CMD, Tiger Logistics

27 April 2018 / Outlook BUSINESS

VISHAL KOUL

Fully-loaded Tiger Logistics’ aggressive approach across multiple verticals has helped it carve out a dependable niche in a cluttered market

Sales (5-year CAGR, %) — 21 NET PROFIT (5-year CAGR, %) —25 ROCE (5-year AVERAGE, %) — 30

Outlook BUSINESS / 27 April 2018

31

FASTEST GROWING COMPANIES Shilpa Elizabeth Abraham

H

arpreet Singh Malhotra bursts into laughter when asked the reason behind naming his company as Tiger Logistics. “Had I named it Harpreet Logistics or something else, say Fast Logistics, you wouldn’t have asked me this question,” he quips. Jokes apart, it wasn’t a random name that popped in Malhotra’s brain. Eighteen years down the line, Tiger Logistics stands true to what he had in mind (character and aggression) when he named his company after the magnificent beast. The Delhi-based company with a market cap of #208 crore has been growing fast at an impressive 28% per annum offering its customers end-toend supply chain management. Its array of services include transportation, customs consultancy, customs clearance and international freight forwarding. With projected FY18 revenue of #350 crore, Tiger sure has come a long way from its modest beginnings — an initial investment of #50,000, revenue of a few lakh and a team of eight people.

32

A first-generation entrepreneur, whose grandfather and father worked in the armed forces, Malhotra was 30 -years-old when he set up Tiger in 2000. An IIFT graduate, he was working with Hero MotoCorp handling its logistics. For Malhotra who was used to the military way of life, exposure to civil life came across as a very different experience. That along with an aptitude for international trade and an understanding of the logistics industry planted in him the seed of entrepreneurship. “I was working on the other side of the table as well — not only for logistics, but also for exporters and importers who availed services from the logistics company. Since I had worked on both sides, I realised there was a dearth of good logistics companies to serve these people,” he recollects. This was a time when the industry was quite unorganised. This meant Malhotra had no actual models to follow and everything was driven by gut. Nevertheless his experience with organised companies helped him to mould Tiger as a structured organisation. The company, which started off as a clearing house agent in Delhi later emerged as a full-fledged logistics service provider after getting registered with the Directorate General of Shipping as a multimodal transport operator in 2004. While the company had its own share of teething troubles, Malhotra was clear about one thing — the company had to keep growing no matter what the challenge.

ensuring that each one kept growing. It started with auto and was quick to move to yarns, textiles, projects and engineering goods. This gave the company a specialist image. Today the company is working with all the majors in the auto sector such as Bajaj Auto, Hero MotoCorp, Honda Motors, Yamaha, TVS, and Mahindra among others and handles the exports and logistics for all the two-wheeler companies in India. It was a big fillip for the company when it bagged the contracts of Bajaj Auto and ISGEC Heavy Engineering. “For us, Bajaj Auto was a big boost, it took me two years getting that business, but today we are handling 100% of their South America volume. In the case of ISGEC, they had never changed a logistics company for 14 years. We are handling 60% of their projects now,” reveals Malhotra.

It is not just the founder who is beaming with pride but the client too. Mukund Nerekar, manager – export operations, Bajaj Auto, says, “Tiger Logistics has been handling our major cargo for Latin and Asian markets. Close co-ordination, best freights along with tailor-made services, have made them the best available option for international supply chain.”

Tiger has also emerged as a strong player in projects where it works with all the major companies in India. In fact, the company has added some extra feathers to its cap by taking up quite a few high-risk assignments during the course of its journey. Tiger handled the logistics operations during the construction of Salma Dam in Afghanistan, a hydroelectric irrigation dam project by the ministry of external affairs. The construction took about five years, and Tiger handled the logistics in the warstruck region of Chishti Sharif.

Tiger soon started focusing on more verticals such as cold chain, refrigerated containers and commodi-

With projected FY18 revenue of #350 crore, Tiger has come a long way from an initial investment of #50,000, sales of a few lakh and a team of eight people

STANDING OUT The task was cut out in front of him. If the company had to grow, it had to do things differently so that people would take notice. Therefore, Tiger Logistics adopted the strategy of focusing on particular verticals and 27 April 2018 / Outlook BUSINESS

FASTEST GROWING COMPANIES

Tiger has entered defence logistics — a sensitive business, which has a lot of potential due to the dearth of trustworthy players 34

ties. “India is a country where a lot of disruption takes place and you cannot depend on a particular vertical or region if you want to grow,” says Malhotra. Although the company emerged as a strong player in the auto and textiles and yarn sectors, he realised that there was a saturation point to these businesses. If he wanted to scale up, he had to move to other locations and service more verticals. “I liked to focus on verticals because you get identified with those verticals and then in a network effect

Vertical growth

Winning business from auto majors and heavy-duty projects has helped Tiger double its revenue in four years ~ Crore

Net sales

Net profit

ROCE in %

147 3.9 27.60

245 5.8 30.00

253 7.3 30.50

298 10.3 32.80

350 15 35.50

FY14

FY15

FY16

FY17

FY18E*

one customer attracts another customer. The vertical focused approach also helps us to understand the industry and plan our investments and growth plans according to it,” Malhotra notes. It meant that the company was not dependent on one vertical alone and during lean times in one vertical, it could pull in growth from another. “Some give us more profitability, some give us more volume. So it helps us to balance out. It also helps us on a pan-India basis since consignments from some of these verticals would be moving out of north, some from west and some from the east,” he adds. Tiger today has 15 offices across all major ports in India.

One of the major factors that aided the company’s growth was its investment in technology. “Since I have worked on the other side of the table, it really helped me understand the pain point of customers,” Malhotra remembers. The company, which started investing in technology in its early days, is now looking at a 3x jump in the capital allocation for technology development. “If you are a pan-India company, unless you have the technology to control things, you can’t handle it,” Malhotra points out. Focusing on areas such as track and trace, documentation and financial control, Tiger has invested heavily in technological tools for the same.

FLYING HIGH *estimates

27 April 2018 / Outlook BUSINESS

Source: SBICAP Securities Research

Defence logistics has been one of the latest verticals that Tiger has entered, something which Malhotra

We understand the mentality of Indians and our solutions are flexible within the spheres of compliance

Tiger takes care of any special requirements in terms of custom clearance or doorstep delivery to the buyer

—PANKAJ GUPTA

—AJAY NARAYANAN

COO, Tiger Logistics

takes pride in. He believes it to be one of the future growth engines. “We must be the only company in India which is moving live ammunitions and guns for the Indian Army and at the same time doing shipments of rice exports from Mundra and tile shipments from Morbi. But defence has a lot of potential, as there is dearth of trustworthy players to handle such a sensitive business,” he says. One of the proud assignments of Tiger was when it carried the Airborne Early Warning and Control Systems (AWACS) from Israel for the Indian Air Force. “We were the first ones to carry AWACS from Israel to India. Handling that was one hell of a job because you can’t fly over Saudi or Sudan.

We worked very closely with the Indian Air Force and those in Israel and finally got those shipments to the airforce camp in Agra,” he remembers.

So, how does Tiger go about choosing its verticals?

Definitely not a knee-jerk reaction, Malhotra says.

“We look at the overall growth of a sector, track its past and present business volume, analyse future growth and then only try and get into it. We were very strong in the Morbi market, but we realised a lot of our capital was getting stuck there. So we decided to move out. We keep taking these decisions depending on market due diligence,” he says. The company also makes sure it chooses the right partners in foreign countries so that it doesn’t falter on tough projects.

Tiger has partnered with Falcon in US, Blue Cargo in Colombia and Core in China. The company, which follows an asset-light model has a fleet of about 60 trailers and 150 attached vehicles. On being asked if it was a conscious decision to remain asset-light, Malhotra laughs, “Initially we were forced to be so since we didn’t have any capital. But over the course of time it became our strength. We could take faster decisions and not invest huge amounts in assets.”

The company, however, had its own share of challenges. During its early stage it found it difficult to bag big customers who preferred multinational logistics providers. The entry barrier for Tiger was huge.

It also found it tough to attract good talent and had to train the people it hired. In fact, such challenges prompted the company to go to the bourses.

In 2013, when the company got listed on the BSE SME Exchange and subsequently migrated to the

VP, Alok Industries

main board, it was one of the youngest companies in the logistics space to do so. While the IPO raised #8 crore, Malhotra emphasises that the reason for going public was to get more visibility rather than to raise money. Being a listed company gave it more credibility. The MNC challenge still persists, but Malhotra feels his company is today in a better position to counter them.

Pankaj Gupta, COO, Tiger Logistics, adds, “As far as MNCs are considered there is always a lack of human touch — they are very system driven. As an Indian company, we understand the mentality of Indian customers. Our solutions are not rigid; they are flexible within the spheres of compliance.” According to him, one of the factors that give Tiger an edge over MNCs is its choice of markets, “Take Gujarat for example – we went there and we went deep in. We went to Morbi and Veraval where MNCs weren’t present, but there was enough business there.”

TROUBLED WATERS Alok Industries has been a client of Tiger for the past eight years and Ajay Narayanan, VP (sales), at Alok, agrees with what Gupta says. “If you have any special requirements in terms of custom clearance and or in

Long-hauler

By increasing its existing market share, Tiger is hoping to touch a revenue of #1,000 crore in the next three years Industry-wise revenue contribution (%)

Projects

38 11 27

Auto

Commodities

29 20 21

24

30

FY14

FY15

Others

22

25

21 31 23 23 34 FY16

21 FY17

Source: Company / SBICAP Securities Research

Outlook BUSINESS / 27 April 2018

35

FASTEST GROWING COMPANIES Unlike others, with Tiger there is no need for follow-ups — there is information flow and transparency —ARUN AGARWAL

Head - logistics, Sterlite Power

36

terms of door delivery to the buyer at the destination, they take care of it. There are several other players in the industry, but you don’t find most of them having all facilities under one roof. That is the advantage with Tiger,” he adds.

However as the company grew, along with it came new challenges. “In FY15 we were a debt free company — but for the past two-three years there has been major financial constraints because from a #100 crore company, we have grown to #300 crore. So getting a bigger credit line has been a problem,” says Malhotra.

“Another thing is liquidity. People don’t pay on time, even big companies,” he adds.

Tiger also had a hard time during demonetisation and implementation of GST. Demonetisation proved to be a demon for the company wiping off two to three months of growth. A lot of payments got stuck and Malhotra feels it is still haunting the company. However the fact that Tiger had been operating in the organised sector and never dealt in cash, helped to an extent. While he thinks GST is going to be a game changer for the industry it did have teething troubles. “Maybe in next one to two years, it would improve the productivity of a driver by 25% atleast and corruption would also go down. We have been in the organised sector and GST would help us by rooting out people who function in unorganised manner and thus bring us more business,” Malhotra observes.

Arun Agarwal who heads logistics at Sterlite Power compliments Tiger’s speed of response. Tiger Logistics has been handling Sterlite’s export shipments, transportation, freight forwarding and clearing for the past three to four years. “The ownership they take is exemplary. We deal with a lot of vendors and all of them do their job, but a lot of follow-up is required with some of them. But in case of Tiger, there is no need to chase them. There is information flow and transparency,” he says. At Sterlite, where vendor evaluation is done every month and vendors who

score below 80% are eliminated, Tiger’s score has been in the range of 95 -98%.

EXPLORING NEW GROUND Having recorded a 5 -year CAGR of 20%, Tiger Logistics is well set for more growth. Along with strengthening its existing bases and verticals, the company is looking at new geographies and verticals. Tiger, which earlier had been focusing only on outbound logistics, is now looking at inbound logistics too, as imports to India is a huge market. “We are looking at the India business in a big way. We were zero there and any growth is a big plus. The team is in place, and we are ready to go,” he says. The company is also looking at the south and east regions as crucial geographies and is opening new offices in south India. To capture the GST boom the company has also diversified into warehousing distribution.

“Logistics space in India still has a long way to go from mere godown keeping. Technology driven warehousing distribution is the way forward, but India is much behind compared to foreign players. I think there’s a lot that we can do in that space,” states Malhotra.

Another crucial area where the company did not have a presence for almost 15 years is the US trade line. Tiger has recently inked an exclusive partnership with Falcon and is looking at strengthening its presence in the US market. It is also eyeing Gulf markets, primarily Saudi Arabia, where the government is investing heavily in development.

“We do have a presence in Far East, but they are all very saturated in terms of logistics. We are looking at newer markets, like Myanmar,” says Malhotra.

Tiger, which currently operates at a 4.9% operating margin, expects to record a 15% growth in topline and bottomline over the next five years. Malhotra hopes to touch revenue of #1,000 crore in the next three years. “We are entering the right businesses so that our goals can be achieved. Whatever we have been implementing in the past two years has been showing results. Even when the market was not doing well, we have been able to maintain the pace of our growth,” he says.

A firm believer in destiny, Malhotra feels it has had a big role in shaping his life as well as his company. But sheer determination and an unquenchable thirst for growth have played an equal role in the growth of Tiger Logistics. Malhotra clearly believes this is just the beginning. “All this growth that we have seen is only from a few verticals. There’s lot more that we are yet to cover. And we are all ready for it,” he signs off. b

In 2013, when Tiger listed on the BSE SME Exchange and migrated to the main board, it was one of the youngest companies in the logistics space to do so

27 April 2018 / Outlook BUSINESS

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FASTEST GROWING COMPANIES

40

Gutsy connector 27 April 2018 / Outlook BUSINESS

VISHAL KOUL

We made a #100 crore acquisition when we were a #140 crore company — it was the boldest decision I have ever taken —AMIT JAIN Chairman, CMI

CMI’s bold risks have ensured that its growth story has kept up with time. With the acquisition of General Cable’s Baddi plant, it is now going after the big boys

Sales (5-year CAGR, %) — 45 NET PROFIT (5-year CAGR, %) — 91 ROCE (5-year AVERAGE, %) — 21 Outlook BUSINESS / 27 April 2018

41

FASTEST GROWING COMPANIES Himanshu Kakkar

S

itting in his Barakhamba Road office in Delhi, Amit Jain seems relaxed. It’s not a sight you come across very often these days — business after all has been rough in the past couple of years. But Jain, chairman and managing director of CMI, a Delhi-based specialty cables company has nothing to complain as his company has been going from strength to strength. “We made a #100 crore acquisition when we were a #140 crore company — it was the boldest decision I have ever taken,” Jain elates.

The corporate presentation shown to us before he arrives for the meeting paints the acquisition as a game changer for CMI. In 2016, Jain bought the Baddi plant of US -based General Cable for #96 crore. The acquired facility complements the products already manufactured by CMI. Jain tells us how the ‘prized catch’ came through.

General Cable invested #400 crore in 2009 to build a cable plant in Baddi. In August 2013, the plant commenced operations but barely a year later production was halted. The appointment of a new CEO at the parent resulted

42

in a major policy shift wherein they decided to sell all their plants in the Asia Pacific region, which cumulatively contributed 10% to General Cable’s $7 billion revenue. The Baddi plant was among those.

At the time of the acquisition, CMI had only one plant in Faridabad with revenue of #300 crore, which had peaked in its utilisation. General Cable’s Baddi plant offered the potential to triple sales and Jain grabbed the opportunity.

Even though the acquisition has not yielded results yet, it has refueled the company for the next lap. Over the past five years, CMI has been on the fast track with sales and profit growing at CAGR of 45% and 42%, respectively. The company is expected to achieve sales of #550 crore in FY18, with profit of around #30 crore.

When you ask Jain about the company’s performance over the past five years’, he goes into flashback mode, “In the past five years, we have reaped the fruits of our toil between 2008 and 2013.”

SOUND FOUNDATION

CMI has been on the fast track with sales and profit growing at CAGR of 45% and 42% and is expected to achieve sales of 550 crore in FY18

Jain wasn’t a cable maker until 11 years ago. He worked in his family business and supplied metal conductors to cable manufacturers. During the course of business, he realised that all the people in that segment were doing well except CMI. It was because the company was focused on a single product — telecom cables. Confident that he could turn it around, Jain acquired CMI in 2007. He reveals, “It was a sick unit which we bought from the bank. We had been dealing with them for a long period and promoter Shantilal Choudhari’s next generation was not keen on taking over the business. Their core focus was telecom and after the change in technology, procurement stopped for their cables.”

27 April 2018 / Outlook BUSINESS

Jain was looking for some kind of forward integration and that’s why he bought CMI — a good brand, which had a plant in Faridabad. But he had to revive the sick unit. While putting all eggs in the telecom basket had killed the company, there were other things that needed to be fixed.

“At that time, unity of command was missing, a lot of scrappage was happening, there were production slippages, and the focus was only on a single product.

We started multiple products and created multiple verticals to insulate ourselves from the cyclical nature of a particular sector,” says Jain. The good thing was that the Faridabad plant was already up and running.

The first thing he did was to create a lot of fungible capacity by adding processes to make the same plant versatile. In simple terms, the plant could now make cables for any sector. Today, CMI can make any kind of cable, except optical fibre. # In the cables and wires segment, there are many players specialising in specific sectors. In railways — Incom Cables, Tirupati Cable, Manoj Cables, and Polycab are key suppliers. In the power sector — KEI Industries and Delton Cables are big names and in telecom, Vindhya Telelinks is a known player. A company has to go through a lengthy approval process to become eligible to supply cables to any sector. The process takes around four-five years and that is why, a lot of players focus on a single sector instead of going after multiple sectors.

Jain knew that since his clients were largely government entities and PSUs, dealing with their tendering process was going to be a game of patience. It meant, investing and working today but not expecting results in the short term. “We knew it was going to be a grad-

Custom-made

CMI customising cables as per its clients’ requirements has helped the company scale up Productwise revenue mix (FY17) in % in %

Rubber 0.03 Telephone 0.4

Others 13 Signalling 24.4

Railway signalling cables and quad cables 28-30

Control 4.6

Other specialised cables 55-58

HT Cables 8.9 Power 10.6 Quad 18.3

Revenue contribution (FY16) Estimated revenue contribution (FY19) Sales forecast (FY16-19)

Power cables 50-53 Instrumentation 19.5 Source : Company

ual process. For Railways, it takes three-four years to get their enlistment, likewise for Engineers India (EIL) and Bharat Heavy Electricals (BHEL). It’s only after that you get into the race and bid for projects,” he adds. Once the approvals came through, Jain went on the offensive. “Initially, we bid aggressively. The whole idea was to get our foot in the door and reap the benefits later.”

The bets have paid off. Today, the company counts Railways, BHEL , Indian Space Research Organisation (ISRO) and EIL as its major institutional clients.

Apart from this, Jain also believes that their ability to offer customised products helped them win the confidence of clients. “Once you provide specialisation or customisation, you get a margin better than the industry norm of 11-14%. Also, since most of our products are customised, we don’t have to stock inventory,” says Jain.

The list of specialised cables CMI has developed is impressive. For railways, the company developed a 1.4 axle cable, which was not available in the Indian market. Further, it developed gas insulation cables for Alstom, customised communication cables for Metro, heat-sensing cables for NTPC and the list goes on. “What we supply to ISRO is a feather in our cap even though it is a small vertical currently,” says Jain. CMI worked with ISRO when they were looking for a cable for their multi-object tracking system. ISRO required a cable that could withstand the

Instrumentation and control cables 47-50

12 12

17 38

15 24

52

30

Source : CRISIL

temperature of a rocket launch. At different stages, the rocket separates and vessels fall in the ocean. So they wanted a cable, which could survive that heat; at the same time, once the object came into contact with water it needed to transmit a signal so that it could be traced and reused. Jain’s team then developed a Teflon cable.

Ditto for refineries, a vertical CMI entered in 2014.

They needed a cable, which had to survive 950°C for 90 minutes while maintaining circuit integrity. “Despite the fact that the metal content burns at 800°C, we developed a cable for refineries. Now refiners have mandated its usage in all new refineries,” points out Jain. The vertical clocked revenue of #30 crore in the first year and now, in the third year, is expected to rake in #45 crore.

Another customer, Shubhashree Agni Cement that commenced operations at its Nepal plant three months ago bought #1 crore worth of motor wires from CMI. “Motor wiring is critical to the running of a plant. In case of a breakdown, the repair has to be done quickly to revive production. We opted for them, because of servicing quality,” says, Rajesh Mudgal, head, commercial & industrial division, Shubhashree Agni Cement.

COMPETITIVE EDGE If the first five years after the acquisition of CMI, laid the foundation for future growth, the recent acquiOutlook BUSINESS / 27 April 2018

43

FASTEST GROWING COMPANIES A strong mesh

The Indian cable market is on a robust growth trajectory driven by strong demand in power and railways

In the right direction

With increased capacity utilisation at its Baddi plant, CMI is optimistic about margin expansion (in %)

Indian wire and cable market in # crore

68,561 59,618

Capacity utilisation

22.50

25.00

45-50

80

FY17

FY18

FY19*

FY20*

51,482 28,655

FY14

44

32,667

FY15

39,200

45,080

FY16

FY17

FY18

FY19* FY20*

Source: IEEMA annual reports, Industry estimates*

*estimates

sition of General Cable’s unit will take it to the next level. “We are six years ahead after this acquisition. It takes four to five years to build such a capacity, and another couple of years at least to get approvals from customers. While our competitors are 5x–10x bigger than us, reaching that level shouldn’t be a problem for us anymore,” says Jain.

CMI started commercial operations from the newly acquired Baddi facility in September 2016 and claims to have raised the capacity utilisation to around 25% in FY18 from 5% in FY16. While the capacity utilisation may seem low, it is because the Baddi plant is currently being utilised only for power cables. “After making the plant more fungible, we should reach a utilisation of 80% in the next two years,” informs Jain.

As of today, CMI’s order book stands at #300 crore with #2,000 crore of bids in the pipeline. In FY17, the company’s profit jumped from #10 crore to #30 crore. Jain says the spurt was because the Faridabad plant was fully depreciated and its capacity utilisation rose to 85% from

60 - 65%. In FY18, the company is aiming to achieve a turnover of #550 crore, with the profit remaining at last year’s level — #30 crore. That’s because the Baddi plant has to provide depreciation of #10 crore despite its low capacity utilisation. In comparison, the depreciation for the Faridabad plant stands at #50 lakh even as it produces sales of #300 crore. “Once we start utilising about 50 - 60% of the new capacity, the proportion of expenses will shrink and Ebitda margin will move to 14.5% from 11.5%,” says Jain.

Rolling in revenue

Technological innovation and government orders have put CMI on the fast track # crore

Net sales

Net profit

ROCE (in %)

89 2 17

105 2 18

136 6 25

240 10.6 27

FY13

FY14

FY15

FY16

378 30 25

FY17 Source: Ace Equity

27 April 2018 / Outlook BUSINESS

Source: Company

SOLID CONNECTION With a diverse range of cables under its sleeve, CMI is well-positioned to ride any capex surge in the manufacturing and core sectors. For the next five years, Indian Railway’s budget is #850,000 crore – which, by the way, happens to be China’s rail budget for just a year.

Indian Railways embarking on several new projects is expected to generate good growth for CMI over the next three-five years. Then, the newly acquired Baddi plant complies with international standards and is hoping to bag export orders. Jain himself is bullish on growth from refining and solar sector due to ongoing projects like Smart City Mission and Solar Mission.

He feels that their growth coincides with India’s growth story. If that derails, CMI will also feel the heat. Even though most sectors are showing good growth currently, to insulate itself from a possible derailment in the future, the company has started looking beyond Indian shores. Last year, exports to South East Asia and North Africa contributed 2 -3% to the company’s revenue. “They were all educational orders, placed by customers to familiarise themselves.

We will look at exports as a serious vertical in the future,” says Jain. So far, it has been a story of making bold bets and waiting patiently and CMI intends to continue on that path. b

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FASTEST GROWING COMPANIES

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Fashionably forward 27 April 2018 / Outlook BUSINESS

RA CHANDROO

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I could see the huge difference between products in international markets and domestic markets. There was a definite gap waiting to be filled, which I knew we could —VENKATESH RAJAGOPAL CMD, Indian Terrain

Riding on the growth in mens’ branded apparel, home-grown brand Indian Terrain has carved a niche for itself in the premium casual wear segment. As more international brands enter the Indian market, will its dream run continue?

Sales (5-year CAGR, %) — 21 NET PROFIT (5-year CAGR, %) — 47 ROCE (5-year AVERAGE, %) — 21 Outlook BUSINESS / 27 April 2018

FASTEST GROWING COMPANIES Kripa Mahalingam

V

enkatesh Rajagopal joined the civil services as an IPS officer in 1979. After 10 years of service he finally couldn’t ignore his inner calling to be an entrepreneur. He resigned in 1988 to start his own export-manufacturing outfit called Celebrity Fashions. “Start-ups were nowhere in the picture those days but being an entrepreneur was definitely a thrill for me,” says the chairman and managing director of Indian Terrain. As an exporter, client visits often took Rajagopal overseas. “I could see the huge difference between products in international markets and domestic markets. There was a definite gap waiting to be filled, which I knew we could. Plus manufacturing for exports is an anonymous business. Once the product is on the ship, it is no longer yours. But I wanted to experience the complete prod-

48

uct cycle for manufacturing to owning a brand and it was also becoming clear that consumption was going to take off in India. So we decided to launch Indian Terrain in 2000,” he says.

Indian Terrain was launched as a premium workwear and smart casual clothing brand for men. At that time, it was a division of the Madras based Celebrity Fashions, which was into manufacturing, and exporting of apparels to leading international brands such as Timberland, Diesel, Tommy Hilfiger, LL Bean and Nautica. “Indian Terrain was just a cold start but the confidence to take on the big boys came from the fact that we had tremendous understanding and expertise of sportswear manufacturing, supplying to these global brands over the years. We knew we could manufacture a world-class product,” says Rajagopal. His company is known for its trademark khakis and offers a range of garments including shirts, trousers, T-shirts, shorts, sweaters, jackets, and denims.

The company began with two company-owned outlets in Madras and Bangalore and slowly began to widen its franchisee network in the South. They got their first big break with Shoppers Stop in 2003, which gave the company the much needed shelf space across outlets, kicking off their distribution, nation wide. “It was a bet I took on the entrepreneur. We didn’t know much about the brand back then but Venky seemed like a good entrepreneur to back,” says BS Nagesh, Founder, TRRAIN (Trust for the Retailers and Retail Associates of India) and non-executive vice-chairman, Shoppers Stop.

Now that the distribution was falling in place, the company realised it had to step up its marketing and brand building efforts. In 2005, Bennett Coleman & Co picked up a 3.6% stake in Indian Terrain in exchange for ad space and brand building initiatives across their properties for their next two-three years. “A lot of people questioned us on whether the branding efforts were

Spirited show Increasing casual workwear and an expanding distribution network has kept Indian Terrain on the growth path # crore

166 4 16.98

Net sales

232 10 24.52

290 18 24.29

Net profit

ROCE(%)

325 33 23.67

Label conscious The branded apparels segment is likely to grow led by rising income levels US $ billion Men’s wear Womens Kids Total

403 28 22.24

27

44

10 18

46

19 FY13

FY14

Source: Ace Equity

27 April 2018 / Outlook BUSINESS

FY15

FY16

2016

FY17 *Forecast

2025* Source: Technopak, UBS

Casual wear is becoming the de facto style of dressing in young India which works to our advantage

worth giving up a part of the company. But there was no other way. We didn’t have a lot of capital and at that time it was important to create that brand recall. It was one of the best things that ever happened to Indian Terrain because it gave that much needed visibility and brand recall across the country,” says Rajagopal.

—CHARATH NARASIMHAN CEO, Indian Terrain

NETWORK EFFECT Initially, Celebrity Fashions helped the brand meet a lot of their supply requirements but today that has reduced to less than 5% of revenue, as they have built a robust pipeline of vendors who have grown with the company. The company’s expansion of stores has largely been led by franchisees. Today Indian Terrain retails across the country through more than 1,200 multi-brand outlets (MBOs), 330 large format stores (such as Lifestyle, Shoppers Stop, Reliance Trends and Central), 160 exclusive brand outlets (EBOs), and key e-commerce platforms as well. After establishing itself and to unlock the value of the brand, Celebrity Fashions decided to hive off Indian Terrain into a separate company in 2010. Shareholders in Celebrity Fashions got two shares of Indian Terrain for every seven shares held. Following the demerger, the company got listed in 2011. At that time Indian Terrain raked in about #120 crore.

Over the past five years, the company’s revenue has compounded at 21% and profit at 47% respectively.

Having tripled its revenue since listing, the company is now looking to grow by 20 -22% over the next twothree years, riding on the growth in the men’s apparel segment. “Indian Terrain identified the opportunity in the casuals segment and focused on creating good quality products, which has helped them to stand out among international brands. Their success coincided with offices adapting a more casual dress code and they smartly identified that niche,” says J Suresh, managing director, Arvind Lifestyle Brands.

According to an UBS Securities research report and estimates by various industry sources, the men’s apparel segment is likely to grow from its current size of $18 billion-20 billion to $45 billion- 47 billion by 2025. The report says the top 10 -12 players make up only about 20% of the overall revenue with unorganised players bringing in the balance. Companies like Indian Terrain are hoping to make the most from the gradual shift from the unorganised sector (unbranded clothing) to the organised sector as income levels increase. “India is becoming a younger country and casual wear is becoming the de facto style

of dressing which works to our advantage since we have built a strong presence here, which will clearly drive growth,” says Charath Narasimhan, CEO, Indian Terrain.

Narasimhan says, apart from increasing the number of outlets in metros, a growing presence in smaller cities and towns is helping them sustain the growth momentum. “Given our premium positioning, there was always this lingering question on whether there would be takers for the product outside the large 10 -12 cities but we have been seeing good demand from smaller towns,” says Narasimhan. For instance, in Andhra Pradesh, after establishing its presence in Hyderabad, Vizag and Vijayawada, the company has found takers for its brand in smaller towns like Ongole, Khammam, Kakinada etc. “Typically we enter the markets through large regional retail chains and once we find there is enough demand for our products we open up an independent store there,” he says.

According to him there are several regional retail chains in the South that help discover newer markets. For instance there is a retailer in Tamil Nadu who has a 40,000 sq feet store set up in places such as Thanjavur and Ramanathapuram.

“We would have never guessed there could be so much demand in places like Ramanathapuram,” he adds Seeing this increasing demand from smaller towns, Indian Terrain is looking to expand its network of 150 stores to around 250 stores in the next 4 -5 years. It has been adding 20 -25 stores every year over the past threefour years and that will continue. A large part of its network is in the South but now with the product being accepted, it is looking at a larger presence in the North as well. “Indian Terrain did well to develop long-term relationships with large retailers by focusing on quality and timely delivery and their network across the retail chains has played a large part in the brand’s growth,” says Vasanth Kumar, managing director, Lifestyle International. Last year, the company tied up with Reliance Trends, which gave them space in 100 outlets. “Reliance Trends now makes up one-third of our presence

Indian Terrain has built a robust pipeline of vendors and its expansion has been largely led by franchisees who have grown with the company

Outlook BUSINESS / 27 April 2018

49

FASTEST GROWING COMPANIES years, is currently being sold only in 25 of their stores.

Apart from having a larger presence across its stores, the company will also retail the boys’ line through all the major retail chains such as Lifestyle, Shoppers Stop and Central. As a result, the business, which now brings in about #35 crore, is expected to rake in #100 crore in the next four years.

While its performance over the past five years helped Indian Terrain make the fastest-growing companies list, Nagesh thinks it hasn’t been aggressive enough to leverage the growth opportunities, choosing to stick to its core area of sportswear and casual wear. “Despite having a presence for more than a decade, Indian Terrain missed the window of opportunity to scale up the business aggressively before the advent of the international brands. However, their product is aligned to today’s youth and they can build on it, ” feels Nagesh.

Rajagopal agrees with that observation. “We have been focused on sportswear because I have been passionate about the design philosophy of sportswear.

When you are a building a good brand, you should MEN II BOYZ know which opportunity to pursue and which one you In a bid to expand its presence across segments, Inshould walk away from. If we foray into a segment dian Terrain forayed into boys’ clothing in 2015. The that doesn’t lend itself naturally to our expertise, then merchandise, targeted at boys from the age of 6 -16 we will be undoing all the good work done in the last decade or so,” says Rajagopal. He learnt that lesSelling points Indian Terrain’s distribution network son the hard way when the company forayed into women’s wear in is spread across various channels 2008 - 09 but made little headway and two years later pulled the plug.

“We went at it hammer and tongs but I have it to give to my team who identified early on that it just didn’t play to our strengths and there was no point pursuing something where we couldn’t leverage any of our strengths.”

Having decided to stick to one brand, the company will have to look at ways to stay relevant across seasons while sticking to their core strength of manufacturing casual menswear or sportsPRESENT ACROSS 250+ CITIES wear. “The challenge of being in THROUGH DIFFERENT FORMATS a single segment is that there is very little room for error and any misstep can prove to be costly for the brand. Since they (Celebrity Large Format Outlets Exclusive Brand Outlets Fashions) continue to manufacture for top international brands, there is a lot they can learn with respect to fashion trends,” says Suresh. That’s why Arvind had Multi-Brand Outlets

in large format stores. They now want us to expand to all the 450 stores they have,” says Rajagopal.

About, 40% of its revenue comes from the South, 20% each from the North and West and the balance from East and online sales. E-commerce currently makes up 5% of overall revenue and over the past year, the company has worked on redefining its relationships with e-commerce players. For instance, with Myntra, they have worked out a model where Indian Terrain will hold the inventory and ship the product once the order comes through and about 20% of the merchandise will be sold at full price while the balance, the last season’s inventory, will be sold at a discount of 30 -35%. “We want to use data and analytics generated by the e-commerce platforms to understand what merchandise sells better. While e-commerce definitely will be a growth area for us in the coming years, we don’t want to be seen primarily as a discounting brand,” says Narasimhan.

50

330 160 1,200

27 April 2018 / Outlook BUSINESS

The challenge in a single segment is that there is little room for error and a misstep can be costly for the brand

Indian Terrain missed the opportunity to scale up aggresively before the advent of international brands

—J SURESH

—BS NAGESH

MD, Arvind Lifestyle Brands

Founder, TRRAIN

taken a multi-brand approach opting for a portfolio of both home-grown and licensed brands. While the portfolio is skewed in favour of casual wear, these brands are positioned across various price points and styles targeting different demographic segments.

The brands rake in about #2,350 crore for Arvind of which US Polo, Indian Terrain’s largest competitor, brings in nearly #1,000 crore. “I could launch another brand to rake in another #20 crore-30 crore because there are always consumers on the fringe who are looking to try a new brand. But it takes a lot to create and scale up a brand and when you are a small company, you don’t always have the bandwidth to manage multiple brands and it ends up taking our attention from the core business which can be disastrous.” says Rajagopal.

CLOSET WARS

Uniqlo, Asia largest retailer; Turkish brands such Mavi Jeans, AVVA; Chinese brand Meters/bonwe and French ready-to-wear brand Kiabi. “Clothing is an attractive business opportunity in India given the size of the population. There is still a lot of juice left in the can and we believe, with our niche focus, we can continue to grow at 20%,” says a confident Rajagopal.

The company has followed an asset-light model so far, outsourcing its manufacturing to vendors. Even its store expansion is predominantly franchisee-led with over 100 stores in its current network belonging to them and according to the company, the bulk of the exclusive stores will continue to be with the franchisees. As a result, the company’s margin at 11.5% is significantly higher than that of brand business of Arvind (7.2%) and ABRL (7.0%) according to the UBS research report. While Arvind and ABRL have a large branded apparel portfolio, both companies are still investing a lot on marketing and distribution initiatives on their newer brands, which is dragging down the overall margin of the branded business.

Indian Terrain raised #75 crore through a QIP in 2015 to fund its expansion. The company moved from GAAP to Ind-AS in April 2017. Under the new accounting standard, discounts that were added earlier to the costs will now be directly deducted from revenue. For the nine-months ended December 2017, revenue increased by 24% while profit growth was tepid at 17% as margins came under pressure due to higher costs.

In FY18, analysts estimate revenue growth to remain at 20 -22% and net profit, which saw a decline of 16% in FY17 due to a significant increase in tax provision, is likely to grow 10 -12% due to increased marketing spend and personnel costs. However, with increased distribution, the company’s revenue over the next two years (FY19 -20) is expected to see an average growth of 21% and margin is likely to improve to 13% due to higher sourcing gains, leading to profit growth of around 28%. As the brand has been able to create a niche for itself, revenue and earnings growth could stay on track. b

Increasing competition will not allow Indian Terrain to increase prices and only higher volume can bring scale benefits in sourcing and amortising

Indeed, the garments business is execution intensive and the company is looking to ensure both the supply chain and the distribution network is in place to ensure there are no stock outs. In fact, the company has doubled its central warehousing capacity in Chennai to ensure timely supplies. “Not discounting is not an option because that is the way the industry functions. But what we can do to improve our overall profitability is to increase in-season sales by a few basis points. So in order to do that, you need to react to the store sale trend in real-time and depending on the product that is selling, we can dispatch more of it early into the season,” explains Narasimhan.

Increasing competition will not allow the company much leeway to increase prices and with an increase in retail and marketing costs, only higher volume can bring some scale benefits in sourcing and amortising costs. Given the increasing working population and income levels, almost all the leading international brands such as GAP, Tommy Hilfiger, H&M, US Polo. and Zara have a presence in India either with partners or independently. And with FDI being allowed in single brand retail, a lot more large and mid-rung brands are looking to come to India such as Japan’s

Outlook BUSINESS / 27 April 2018

51

HAPPY WHILE THE SUN CONTINUES TO SHINE DOWN UPON US WITH A VENGEANCE, AND THE HOT MONTHS GET HOTTER, HERE’S EVERYTHING THAT WILL ENSURE YOU SAIL THROUGH THE SUMMER MONTHS HEALTHY AND HAPPY.

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T

he great Indian summer is upon us, and the sun is continuing its daily onslaught. With global warming exhibiting an upward trajectory, temperatures have been soaring over the years, with every tropical summer getting hotter than the previous one. So, while the cruel months of May and June are yet to come, heatwave-like conditions are already prevailing in most parts of India. The city of Mumbai already recorded decade-high temperatures in the month of March, as has a number of other parts of Maharashtra and Madhya Pradesh.

So, being prepared to beat the heat has come to be of priority.

HOW TO KEEP IT COOL The Air-conditioning market: With global warming on the rise, the hot Indian summer has only gotten hotter, coupled with increasing temperature conditions and rising humidity. With fans no longer enough to keep you cool 27 April 2018 / Outlook BUSINESS

SUMMER 53

through the hot summers, air conditioners are fast moving from the place of luxury they enjoyed at one point to an item of necessity, in average middle class homes across urban India. India’s air conditioner market is among one of the fastest growing markets in Asia-Pacific region. Rising middle class disposable income, increasing urban agglomeration, dwelling of new infrastructures have led to the phenomenal growth of air conditioners market in India. So much so that even Tier II and Tier III cities, where penetration level was low, is witnessing optimistic growth. Recent studies have revealed that ACs are the first appliance people want to buy when they cross a certain income threshold. And millions of Indians are expected to cross that threshold in the next 10-15 years, so analysts expect demand for room air-conditioner somewhat similar to the surge in China around the turn of the millennium.

Amid rising temperatures and growing environmental concerns, brands today are launching highly energy-efficient five star rated ACs that are exceptionally designed and include value-added features especially developed for

Indian markets, based on health conditions, local climatic patterns and consumer requirements.

Currently, the AC market size in India is pegged to around Rs 2 billion and is expected to increase 12-15 per cent this year due to early onset of summer and lower prices. Until last year, around 65 per cent sales came from fixed speed split ACs, 20 per cent from window and the balance 15 per cent from inverter ACs. This year, the industry believes share of inverter air-conditioner will almost double.

At the same time, brands are also launching highly energy-efficient five-star rated ACs that are also exceptionally designed and include value-added features especially developed for Indian markets, based on health conditions, local climatic patterns and consumer requirements. Apart from being cooling devices, these new-age ACs are also high on innovative features like humidity control, air purification and a newly-launched feature that repels mosquitoes in anon-toxic way for you to enjoy a sound sleep, especially in a season where serious epidemics like dengue and malaria are common.

Outlook BUSINESS / 27 April 2018

54

The air-cooler market: On the other hand, the heat wave is also ensuring enormous sales for air coolers. According to IIFL, the Indian air cooler market size is estimated to be around Rs 3,000 crore and around 30% of this is based on the organised sector and the rest is catered by the unorganised segment. Considering the lower cost of ownership and the constrained power supply situation in India, air coolers are in high demand in India.

The market for air coolers in India is forecast to grow at a CAGR of 27% by 2022, on account of rising temperature levels, growing middle class population and low prices of air coolers as compared to air conditioners. Increasing sales of air coolers through online channel, coupled with growing awareness among consumers regarding new technology-based air coolers such as air purification and wall-mounted air coolers is anticipated to boost the air coolers market in India during forecast period. Moreover, government initiatives aimed at electrifying villages across the country are further likely to aid India air coolers market over the next five years.

At the same time, top manufacturers of air coolers such as Symphony Limited, Bajaj Electricals Ltd., Crompton Greaves, Orient Electric Ltd., Usha International Ltd., are coming up with technological innovations, which are positively impacting the sector. For instance, Prime Minister Narendra Modi’s ambitious mission of ‘Make in India’ has encouraged the world’s largest air-cooler maker, Symphony Limited, to introduce the first-ever, wall-mounted air cooler for household customers.

27 April 2018 / Outlook BUSINESS

Eat fresh through the summer months: While a refrigerator is a necessity in every home, refrigeration is crucial through the summer months. The regrigerator market in India is worth billions, with refrigerating companies introducing newer innovations every passing season.

The newly-introduced Bosch side by side refrigerator is high on innovation and comes powered with a Sensor based VarioInverter Compressor. This makes the refrigerator 10% more Energy Efficient than competition models within same capacity class. The refrigerator is also known for the lowest level of noise among models, comes with a 10-year Luxury of SPACE

VitaFresh Plus: Advanced German Technology for Freshness

Vitafresh with zero degree temperature zone in Fridge.

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warranty and works on home USPs, ensuring you never have a dark moment food-wise all through summer.

The 2 independent cooling systems ensure there is all-round circulation of cold air in the fridge, while eliminating any kind of odour within, to keep the food smelling just as it should.

The VitaFresh Plus Advanced German Technology for Freshness efficiently maintains the original flavour, texture and appearance of fruits and vegetables and you are assured of fresh tasting food every day.

Thoughtfully design to give you more fridge space than any other product in same capacity, Bosch comes with EasyShelf, (so you can efficiently organise and easily access your food items that are kept even at the back. The safety glass Safety Glass can take weight up to 180 KG while the strategically-placed LED Light ensures that food items don’t obstruct the Light What is more, this fridge is easy to clean, because it has been designed in a way that all parts can be removed and easily dismantled to ensure that your fridge not only looks clean but is hygienically clean as well.

Look good this summer in trendy summer wear: Summer and fashion don’t always go hand in hand for men.

27 April 2018 / Outlook BUSINESS

But with a little style help, you can channel your inner fashionista, and look good irrespective of the outside temperatures. Be it formal wear or evening wear, clothing options in cottons and linens are bound to be your best friend. So, whether you want edgy, athletic, rugged, or anything in between, this is the summer to step it up and make it happen. With the clothes rack full of stylish summer wear and brands launching innovative and trendy fabrics to help you keep cool, looking good in summer has perhaps never been easier than now.

Stay healthy through the summer months: We have heard a million times that the sun can spell doom for your skin. This gets worse when the sun is at its brightest through the summer months, and leaves you feeling dehydrated and tired on most occasions. As a result, it is extremely important to eat right, essentially, a light diet comprising fruits, frozen yoghurt etc.

Explaining the recent surge in the sale of frozen yoghurts, Mr. Avinash Dolwani - Director, Archway Ventures International Pvt. Ltd. Myfroyoland, a brand synonymous with frozen

Frozen Treats

With self-serve stores that lets you choose your own toppings, Myfroyoland serves up frozen yoghurt that is all imported and made with skimmed milk and natural products in a range of flavours, that not only make them healthy, but tasty too!

T

here was a time when summers meant digging into delicious ice creams to beat the heat. Cut to now. The modern, urban Indian is now more health conscious, as a result of which looking out for healthier alternatives has come to be the new norm. Enter frozen yoghurt. Ordering a creamy swirl of frozen yoghurt on a hot, summer day not only makes us feel virtuous, but also keeps us many degrees cooler.

What exactly is frozen yoghurt?

Yoghurt is a dairy product made from milk fermented with bacterial culture. The University of Michigan Integrative Medicine Program recommends yoghurt as part of a healthy, balanced diet. Frozen yogurt is an excellent, low-fat replacement for ice cream and is available in a variety of flavors.

Heath benefits of frozen yoghurt Rich in nutrients: Including essential minerals and vitamins for overall body health. Minerals in yogurt include calcium, magnesium, potassium, phosphorus, selenium and zinc.

Digestive benefits of probiotics: Frozen yogurt contains the digestive benefits of probiotics.

These bacteria enhance digestive function, reduce allergic reactions and may aid in lactose digestion in individuals with lactose intolerance. Yogurt also helps to decrease symptoms of inflammatory bowel disease, or IBD. Heart healthy: Yoghurt, including frozen varieties, also helps to maintain and improve heart and blood vessel health by helping to convert fiber to healthy fats that promote good cholesterol levels.

What makes Myfroyoland Frozen Yoghurt so good?

While frozen yoghurt stores are popping up in almost every neighbourhood, Myfroyoland as a brand that deals with frozen yoghurts, enjoys immense popularity and a loyal customer base, with stores spread across Maharashtra (Mumbai & Pune) and Rajasthan. “In India, there is a big consumer base who are well-travelled and well-educated, as a result of which they are making healthier choices. Frozen yoghurt has been trending internationally for the last decade or so, but there were never any good options available in India. That’s where Myfroyoland is making a difference,” says Mr Avinash

Dolwani - Director, Archyway Ventures International Pvt.Ltd. What makes Myfroyoland so good?

Elaborating on the USP of his offerings, says Mr. Avinash Dolwani - Director, Archway Ventures International Pvt. Ltd. “Myfroyoland frozen yogurt is all imported and made with skimmed milk and natural products. It’s healthy and it’s absolutely yummy to eat. We have made a lot of effort to provide an international experience in India. With everyone looking for something cold to eat, we cater to a wide range of customers-right from the ages of 1 to 90. The best part is we are a self-serve store, so we get families to come in and mix whatever flavours they want add, add toppings as per their liking and pay by the weight!! It’s all about the experience and the fun people end up having at our stores.”

Myfroyoland flavours to look out for Speaking about the most popular summer flavours, Mr. Avinash Dolwani says, “Our all-time summer favourite is the king of all, the Alphonso Mango yoghurt, which is a hit. We are also planning a special cheesecake-flavoured yoghurt festival this summer! We started off with lavender cheesecake yogurt and moved to pineapple, then we are going to do a strawberry cheesecake, Oreo cheesecake, and Irish coffee cheesecake. For our vegan customers, we will be serving kiwi sorbet and a yummy orange sorbet. Not to forget we have some 100 per cent sugar-free flavours as well.”

With major expansion plans on the anvil to cater to rising demands, the brand is now exploring opting for the franchisee route, giving investors an opportunity to make money at the same time. At the same time, it is also in talks with financial institutions for a boost fund that could help facilitate the opening of at least 30 stores across India.

For Franchisee details contact 8390009944 or email avinash@archwayventures.com Outlook BUSINESS / 27 April 2018

57

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yoghurts, says, “In India, there is a big consumer base who are well-travelled and well-educated, as a result of which they are making healthier choices. Frozen yogurt has been trending internationally for the last decade or so, but there were never any good options available india. That’s where Myfroyoland is making a difference.”

Elaborating on the USP of his offerings, Mr. Avinash Dolwani - Director, Archway Ventures International Pvt. Ltd. says, “Myfroyoland frozen yogurt is all imported and made with skimmed milk and natural products. It’s healthy and it’s absolutely yummy to eat. We have made a lot of effort to provide an international experience in India. With everyone looking for something cold to eat, we cater to a wide range of customers-right from the ages of 1 to 90. The best part is we are a self- serve store, so we get families to come in and mix whatever flavours they want add, toppings as per their liking and pay by the weight! It’s all about the experience and the fun people end up having at our stores.”

Speaking about the most popular summer flavours, Mr. Avinash Dolwani - Director, Archway Ventures International Pvt. Ltd. says, “Our all-time summer favourite is the king of all, the Alphonso Mango yoghurt, which is a hit. We are also planning a special cheesecake-flavoured yoghurt this summer!! We started off with lavender cheesecake yogurt and moved to pineapple, then we are going to do a strawberry cheesecake, Oreo cheesecake, and Irish coffee cheesecake. For our vegan customers, we will be serving kiwi sorbet and a yummy orange sorbet. Not to forget we have some 100 per cent sugar free flavours as well.”

Stay hydrated through the season: One of the biggest concern through the summer months can be dehydration and low energy levels, as a result of which one needs to stay hydrated at all times through a large number of beverages. As

27 April 2018 / Outlook BUSINESS

a result, every summer, the sale of non-alcoholic beverages shoot up and big companies compete hard to grab a greater share of the consumers’ wallet. At the same time, preferences of people too have shifted more towards the functionality or nutrients in the beverages, driving the demand for functional drinks such as packaged juices, in turn.

Within the beverages market, the fruit-based beverages category is one of the fastest growing categories, and has grown at a CAGR of over 30 per cent over the past decade.

At present, the Indian packaged juices market is valued at INR 1100 crore (~USD 200 million) and is projected to grow at a CAGR of 15 per cent over the next three years.

The packaged fruit juices market can be divided into three subcategories, viz. fruit drinks, juices, and nectar drinks.

Fruit drinks, which have a maximum of 30% fruit content, are the highest-selling category, with a 60% share of the market.

Fruit Juices, on the other hand, claim a 30% market share at present. The rising number of health-conscious consumers is giving a boost to fruit juices; it has been observed that consumers are shifting from fruit-based drinks to fruit juices as they consider the latter a healthier breakfast/snack option.

FASTEST GROWING COMPANIES

60

Our strength is in critical care and we expect this division to drive our growth. We are planning next to expand into anesthetics —PRANAV CHOKSI CEO, Gufic Biosciences

27 April 2018 / Outlook BUSINESS

SOUMIK KAR

Injecting growth By focusing on its strength in manufacturing lyophilized injectables, Gufic Biosciences has made a strong comeback and wants to aggressively push into the EU market next

Sales (5-year CAGR, %) — 24 NET PROFIT (5-year CAGR, %) — 42 ROCE (5-year AVERAGE, %) — 20

Outlook BUSINESS / 27 April 2018

61

FASTEST GROWING COMPANIES Jash Kriplani

I

n 1997, Jayesh Choksi, the present chairman and managing director of Gufic Biosciences made a declaration, “Give me 10 years and I will be back.” Choksi had just sold his branded business which included his most popular brands — Mox (antibiotic) and Zole (antifungal) — to Ranbaxy for #80 crore.

Choksi was exiting the pharma business as India’s move to TRIPS (Trade-Related Aspects of Intellectual Property Rights) signaled the arrival of the patent regime and threatened the survival of small and midsized pharma companies. MNCs which had hitherto held back investments due to prevalence of process patents were now expected to take the fight to Indian players in a product patent regime.

In 2000, Choksi set up Gufic Biosciences to regain his foothold in the Indian pharma industry. Focusing on herbal and consumer products, Gufic launched over-the-counter (OTC) brands such as Roll-On, Stretch Nil, Onergy (nutritional supplement) and Shapers (sanitary pads). The company had also ventured into hybrid seeds

62

and tissue culture. However, despite these forays, the company’s FY07 topline of #50 crore and net profit of #70 lakh was nothing to boast about.

Choksi clearly was not kicked at the progress his new venture was making as his profit was less than the rental income on his real estate investments.

When he sold the earlier business in 1997, it had a topline of #85 crore and a net profit of #5 crore. Ten years hence, Choksi’s attempt at making a comeback was not going anywhere.

It was in 2006, when Choksi called on his son Pranav who was in the United States. Pranav had completed his Masters in biotechnology from John Hopkins University and had just started working in the R&D team of a US pharma company.

The idea of moving back to India overnight was not something that enticed Pranav as his career in the US pharma industry had just begun. Finally, after spending a year at the US pharma company, Pranav returned to join Gufic Biosciences in 2007.

company’s roots. In the 1970s, Gufic under its founder Pannalal Choksi (Pranav’s grandfather) was the fi rst Indian company to import a lyophilizer. Gufic’s founder used it to make oxytetracycline injectables (antibacterial used to cure chest and mouth infections) which became a popular product and broke Pfizer’s monopoly in oxytetracycline in India.

In 1997, when Gufic sold its brands to Ranbaxy, the R&D work had continued in Gufic’s Navsari plant which had the lyophilizers. Between 1998 and 2007, the Navsari plant had developed 34 products in lyophilized injectables segment, but it had not marketed them as it didn’t have the required field force. The existing field force was anyway busy pushing other products.

Lyophilization is considered the most stable way of making certain life-saving injections and Pranav felt that this is where Gufic should be channeling most of its energies.

However, expanding the sales team overnight to market its own products would have required huge capital and it would have also been difficult to attract good talent because of the company’s small size. Pranav realised that if Gufic was to survive it needed to scale up its topline so that the overhead costs could be absorbed. To begin with, contract manufacturing of lyophilized injectables was identified as a key focus area for the company.

“From the capacity to manufacture 50,000 vials per month in 2007, it was ramped up to 1.2 million vials per month in 2012. From 1-2 clients, our client base increased to 36,” says Pranav. From net sales of #53 crore in FY07, topline compounded at 9.4% to #83 crore in FY12 . At the beginning of FY07, Gufic had two lyophi-

In the 1970s, Gufic’s founder Pannalal Choksi used lyophilizer to make oxytetracycline injectables, which broke Pfizer’s monopoly in oxytetracycline in India

TAKING CHARGE When he assumed control, Pranav found that Gufic’s operations were spread across businesses, irrespective of its competency. “At that time, close to half of our topline came from herbal products where we had some competency, while the rest came from tissue culture and seeds for which we heavily relied on a set of professionals and a technical team whom we had hired.

The business and the technology could come and go with these people. We didn’t have much control on this business,” recalls Pranav.

For a company that was doing too many things, Gufic needed to find its niche. Pranav went back to the 27 April 2018 / Outlook BUSINESS

Pranav has infused aggressiveness and muchneeded vibrancy into Gufic’s marketing team —NIRAV MEHTA

Director, Corona Remedies

lizers. Between FY07 and FY12, it bought three more lyophilizers for #4 crore which was funded through term loans.

By FY14, the company was clocking sales in excess of #100 crore. Sensing that it was the right time to market its own products, the sales force was gradually increased from 260 in FY14 to 1,030 in FY17. However, it was not just about increasing headcount, but also getting the right mix of people. Gufic hired people from leading pharma companies such as Alkem, Lupin and Abbott for its field force. Between FY14 and FY17, employee costs grew at CAGR of 51% from #12 crore to #41 crore.

NEW LOOK However, to make sure that the marketing team’s energies were aligned with the company’s core competency, Pranav had to make some changes. First off, he stopped selling via the OTC route. Another reason behind realigning the businesses was to steer clear from allocating capital to segments where Gufic would have to compete against established players, typically MNCs or larger pharma players, with huge marketing and promotion budgets.

Products such as Stretch Nil were moved to the pharma division (created in FY14). Roll-On was made part of the herbal division. These products would be pushed through doctors’ prescription and not as OTC products. “OTC is more glamorous and in your face.

But the problem with OTC is that once it is out of sight, it is also out of mind. In the prescription-route, once the doctor is convinced by your product, it will have an endorsement value that will stay much longer,” says Pranav.

This is how Gufic’s business divisions look post restructuring. The herbal division, (recently re-branded as healthcare) offers pain management and nutraceutical products. The rebranding has been done on feedback from Gufic’s sales team which found that doctors’ receptivity to products with herbal tag was low.

Within herbal, Sallaki is Gufic’s largest brand with sales of #26 crore. Sallaki is an ointment that is used by rheumatoid arthritis and osteoarthritis patients to treat inflammation and pain. The newly-created pharma division has special focus on pregnancy and pediatric products. The infertility division has products formulated to help women conceive and also treat male infertility.

The critical care division has 18 products. These are largely lyophilized life-saving injectables that are given to ICU patients. Within the critical care division, another sub-division ‘critical care life’ has been created which offers products that have molecules which have not been introduced in India yet or products that have better grades.

While the pharma division’s sales team has gone up by 80 post the ramp-up, most of the additional field force

Changing tack

Gufic restructured its business to leverage its core competency and improve capital allocation % contribution to revenue

FY07 Castor oil 18 OTC and formulations 41 Bulk drugs 14 Consumer 13

FY17 Contract manufacturing 30 Branded formulations 60 Bulk drugs 8 Consumer 2

Agro 14

Outlook BUSINESS / 27 April 2018

63

FASTEST GROWING COMPANIES has gone to the critical care division which was set up in FY14. The critical care division is the largest contributor to Gufic’s branded business with 50% share. Besides pharma (12%) and critical care, infertility (6 -8%) is another division that has been set up more recently in FY17. Besides these new divisions, herbal (30%), as things stand, is the oldest division at Gufic.

Industry insider Nirav Mehta, director of Ahmedabad-based Corona Remedies whose company uses Gufic’s contract manufacturing for its infertility range, says, “Pranav has infused aggressiveness and muchneeded vibrancy into Gufic’s marketing team. He regularly sits with his sales team and motivates them.”

EYEING GROWTH

64

Of the new divisons, only critical care has turned profitable, while pharma and infertility are yet to do so.

While Pranav says any new division does take three years to break-even, in the case of pharma, profit is still elusive after three years. He believes Gufic needs to rework it approach in the pharma business. “Initially, we launched a lot of branded generics in the pharma division. However, we have realised that we need innovative or differentiated molecules to convince doctors,” he says.

While Gufic has set up various divisions to drive its branded business, it is also trying to capture growth opportunities in the contract manufacturing business which accounts for 30% of its topline.

In FY12, after seeing good traction for its contract manufacturing services, Pranav decided to set up a new plant that could supply to regulated markets like the EU. Partly funded through internal accruals and remainder through debt, a new plant in Navsari was operational by FY15. Costing #88 crore, this was a fully-automated plant which didn’t need any human

Lyophilization is the only way to make certain injectables. It is not easy to build capacities in such a niche business —VIRANCHI SHAH Director, Saga Laboratories

intervention whether for a pre-production stage such as cleaning or the production process itself.

In 2016, the plant received EU- GMP approval. In Q 3FY18, it exported for the first time to Germany. It was a small order of 40,000 -50,000 vials per month of a simple molecule vancomycin (life-saving antibiotic).

“As it was our first order to an EU nation, we wanted to avoid complex molecules. Now that we are more confident, we have filed for two products and will also file for a third product where Gufic would have the marketing rights,” says Pranav. However, the new EUGMP-compliant Navsari plant will not be solely dedicated to EU nations as the demand from Germany is not as high. For example, monthly consumption for Tigecycline vials is 3,000 in Germany, while it is 55,000 60,000 vials in India.

Gufic has already filed patents for Tigecycline (lifesaving antibiotic) and Anidulafungin (life-saving antifungal) in Europe, Russia and South Africa. Supplying to countries such as Europe is lucrative as margins are higher. The gross margin Gufic makes from contract manufacturing is between 20 -25%, while it is 30% on the Germany order.

While margins are important, Gufic doesn’t file patents for products unless it can make a minimum of $1 million-$2 million in revenue from that product in two to three years. For instance, the addressable mar-

Back from the brink

A change in product-mix, along with timely investment in building marketing muscle has altered Gufic’s fortunes ~ Crore

0.7 11

Net sales

0.9 10

Net profit

0.8 14

ROCE (%)

1.2 12

1.5 12

1.5 15

3.3 18

4.3 17

4.2 18

7.3 24

11.4 27

100

123

152

202

249

84 FY12

FY13

FY14

FY15

FY16

53

54

52

63

71

FY07

FY08

FY09

FY10

FY11

FY17 Source: Ace Equity

27 April 2018 / Outlook BUSINESS

We know if we have given a project to Gufic, they will ensure timely delivery. We don’t need to do multiple follow-ups —SATYEN MANIKANI VP (strategy & business development), Alkem

ket for Gufic’s Rifabutin is $120 million in Russia but the product is at least three to four years away from launch as clinical trials is also required.

NEXT MOVE For Gufic from here on, it would be about sweating its assets in the most optimal way. “We are mostly done with capex. Now, it is about improving the efficiencies of the people and the assets,” explains Pranav.

The new Navsari plant has capacity of 1.5 million vials per month which can be extended to 2.8 million vials by adding just three automated machines. “Ramping up the capacity would cost us #10 crore-#12 crore which can be taken care of by internal accruals or debt if the latter is cheaper,” says Pranav.

With the old plant at Navsari running at its full capacity of 1.2 million vials per month, the incremental growth would come from the new plant. With the combined installed capacity of 2.7 million vials per month, the capacity utilisation across the two plants stands at 82%.

Through a focused business strategy, Gufic has already done a good job of sweating its assets.

Over the past five years (FY12 -17), Gufic’s RoCE has gone up from 15% to 27%. Pranav’s plan for the future involves sticking with this strategy. “Our strength is in critical care and we expect this division to drive our growth. Right now, we are present in antibacterial and anti-fungal. We are planning to expand this to anesthetics and later to cardiac critical care,” he adds. According to an investor, whose fund has a substantial holding in Gufic Biosciences, the RoCE could inch up even further as the business only needs minimal working capital.

Industry players say that Pranav’s strategy to move into a segment like lyophilized injections was a master stroke as the segment has hardly any players in India and should ensure sustainable growth for Gufic. “Lyophilization is the only way to make certain injectables. It is not easy to build capacities in such a niche business and getting your facilities cleared by one of

the most stringent audits,” says Viranchi Shah, director at Saga Laboratories.

The branded business in the domestic market makes gross margin of 55% which goes as high as 80% in export markets. Gufic wants to shore up its branded export business to at least 40% of the total topline which today just contributes 8%. Getting an EU- GMP-compliant plant is a step in that direction. Gufic, which has already been exporting to markets such as South East Asia and South America, has plans to follow-up its Germany foray with entry into other EU nations such as Belgium and Netherlands. Besides EU nations, Gufic is targeting the UK , South Africa and Australia.

As mentioned earlier, critical care division which largely comprises of lyophilized injectables is expected to drive profitability for Gufic. In the domestic market, the critical care business makes gross margin of 48%. In the export market, critical care products make margin of 75%. Pranav expects Gufic’s operating margin to go up to 18 -20% over the next three years.

For 9MFY18, Gufic’s Ebitda margin improved 395 basis points to 14%.

From being a company that was on the verge of shutting down, Gufic has scripted a successful turnaround.

By getting into contract manufacturing in 2007 when CRM was still not widely acceptable, Gufic not only grew but also built strong relationships.

Satyen Manikani, VP (strategy, in-licensing and business development), Alkem Laboratories, vouches for Gufic’s capability as a contract manufacturing services provider. “We know if we have given a project to Gufic, then they will ensure timely delivery. We don’t need to do multiple follow-ups with them which is not the case with other business partners,” says Manikani.

According to the earlier mentioned investor, in the fragmented pharma industry, Gufic can leverage its relationships with the big pharma players to push its own products. “Gufic can launch its products with larger players who could have their labeling on the product, but when a doctor would notice on the packaging that the manufacturer is Gufic, it would help in building Gufic’s brand,” says the investor. The management expects 20 -25% sustainable growth for at least the next three years. However, with a young 35 -year old owner- CEO at the helm who has already passed the litmus test of a downcycle, Gufic 3.0 has all the triggers to sustain its growth momentum for several years. After 20 years, Choksi’s Gufic has found its way back and is here to stay. b

Gufic’s operating margin is expected to go up to 18-20% over the next three years. For 9MFY18, the Ebitda margin improved 395 basis points to 14%

Outlook BUSINESS / 27 April 2018

65

FASTEST GROWING COMPANIES

66

27 April 2018 / Outlook BUSINESS

VISHAL KOUL

The globetrotters Its vigorous drive to acquire a diversified client base has helped Chaman Lal Setia Exports scale up against all odds

Sales (5-year CAGR, %) — 20 NET PROFIT (5-year CAGR, %) — 28 ROCE (5-year AVERAGE, %) — 31

We would travel abroad and eat in an Indian restaurant two-three times before befriending the owner.

That was how we traced buyers .

—RAJEEV SETIA [LEFT] Executive director, Chaman Lal Setia Exports With VIJAY

SETIA, ED, Chaman Lal Setia Exports

Outlook BUSINESS / 27 April 2018

67

FASTEST GROWING COMPANIES Himanshu Kakkar

T

here is nothing extraordinary about the conference room at Chaman Lal Setia Exports’ Gurgaon office… in terms of appearance, atleast. However, if you pay close attention to the conversations of the promoters spanning two generations, then you might be able to piece together the reason behind the firm’s impressive growth over the past five decades.

Rajeev Setia, executive director and one of the founding members of the company speaks in fluent Punjabi with a trader over the phone. At the other end of the table is his son, Sankesh Setia, who’s trying to resolve an issue with an international order. And he sounds like any other professional business manager. While both are executive directors of the fi rm, each of them has their unique way in which they go about business; that mixed approach of the old and new generation is what has helped the basmati rice exporter survive and thrive amidst changing times. Basmati rice is a common heritage that India shares with Pakistan with both

68

the countries accounting for 70% and 30% production of the grain respectively.

“The entry of the next generation has made a big difference to our business. They are way more organised and aggressive,” says Rajeev, who oversaw the transformation of the rice mill into an export house back in 1982 along with his brother, Vijay and father, Chaman Lal. And he is now joined by his sons Sankesh, Sukarn and nephew, Ankit. However, the emergence of the next gen isn’t the only reason this family run-company has done well in the past five years. The miller that markets the Maharani rice brand witnessed a rise in revenue from #218 crore in FY13 to an estimated #750 crore in FY18.

TILLING THE SOIL

The exporter that markets the Maharani rice basmati brand has witnessed a rise in revenue from #218 crore in 2013 to #750 crore in FY18

It was in 1974 when Chaman Lal Setia started a rice mill in Amritsar, Punjab. Despite being just college students at the time, both his sons would partake in the mill work as well. Rajeev recalls how within just three years of establishing the mill, they were endowed with a government legislation that enabled them to sell their grains across the country, unlike earlier where it was controlled by the government.

And then rice exports being given a green signal in 1980 gave a huge fillip to the budding businessmen. It took the trio only two years to clinch their fi rst breakthrough in the form of a huge order from a Singaporebased customer. Thirty-six years later, Rajeev still remembers every detail of that trade, “The fi rst consignment was 720 bags of 25 kg each. The total quantity was 18 tonne, and it cost #135,000.”

Securing orders in the international market was no easy task though. Rajeev recalls the pain points then, “We had no way to send a fax back then and emails 27 April 2018 / Outlook BUSINESS

were not yet the order of the day. We would write letters to prospective clients and await their response.

We’d scout the offices of embassies and chambers of commerce abroad. The Singapore client was bagged during one such survey”.

But things were looking good by 1989, when Chaman Lal Setia was officially deemed an exporter. However, back home in India, the northern state of Punjab was dealing with militancy. With the family having lived in Amritsar for decades and the mill being located there as well, the Setia clan didn’t see any reason to move base until 1991. Vijay recounts the events of that unfortunate day when the two brothers were attacked, “Our vehicle was ambushed by terrorists. They shot at both of us and one of my lungs was ruptured.” But the duo managed to disarm the attacker with the licensed firearm they were carrying and averted further damage.

It didn’t take them too long thereafter to shift base to Karnal in Haryana in 1993. And since the mill was already sourcing the crop from the region, it didn’t present any new challenge. In 1995, the company went public and raised #23 crore. Moving to Karnal proved helpful for the business as well. Vijay, who is also the president of the All India Rice Exporters’ Association, managed to get hold of agrarian scientists in the city thanks to the presence of several agri institutions such as the Central Soil Salinity Research Institute and the National Dairy Research Institute.

This encouraged the economics graduate to invest time and resources in understanding more about rice grain. And that eventually led to the promoter developing innovative techniques to improve various processes in the business. “I wanted to understand the

science behind our work. I engaged a scientist from Pusa in Delhi for three years to learn more about postharvest technologies,” says Vijay. He pursued this for several years and that resulted in him filing four patents on the subject.

“In rice milling, you need to heat every batch with 50,000 -100,000 litres of water. I invented a technology by which we could reuse this water.” Apart from developing this technique that has helped the mill save plenty of water, he also worked on ways to retain the optimum quality of the grain by controlling the warehouse temperature.

“In India, parboiling and paddy drying usually takes place in open areas. The grain reacts to fluctuations in temperature and loses its consistency. Six years ago, we introduced a system of storing grains in a controlled temperature at the warehouse”.

ing the owner. Then he would tell us from where he bought rice. That was how we would trace the buyers in each country.”

But Rajeev’s tech savvy sons and nephew have found more ways to enhance this process. “We ensure we travel every month or at least every second month. We identify countries where we don’t supply yet and put that on our radar,” explains Sankesh. The company recently participated in exhibitions such as the Gulf Food exhibition in Dubai, similar trade fairs in Egypt and Iran. In a bid to spread the word far and wide, it has also organised similar events in Africa.

“Unlike earlier, we are not in our target countries only for three-four days, we spend 10 days at least, we add new customers also.

When the promoters themselves travel scouting for customers, it leaves a different impression on the prospective buyers,” he adds. Before the third generation came onboard in 2008, the basmati rice exporter was supplying to 50 countries and that number has gone up to 80 now.

The strategy doesn’t stop at just adding another country to the list, it involves going after multiple clients once a new market has been discovered.

Sankesh explains how it’s a natural progression, “If we supply 100,000 kg in one country, almost 50,000 customers will end up consuming that rice. That’s a massive number of people who will provide feedback.

If they appreciate the quality, other importers will also be interested.”

He further elucidates that there are two types of customers in terms of the business provided — the first place orders in the range of #50 lakh-5 crore. And the second lot falls in the range of #25 crore-50 crore.

Chaman Lal Setia receives 70% of its orders from clients in the first range, while the remaining comes in from big buyers.

Typically a big buyer can squeeze you (may not always be true, but mostly). However, multiple small and mid-sized buyers provide a safety net, as well as better margins. “Our margins are better than our competitors because of this strategy,” claims Sankesh. For instance, Iran which is the largest consumer of Indian basmati rice provides small orders worth #25 crore, while a bigger consignment could fetch as much as

Before the third generation came onboard in 2008, the basmati rice exporter was supplying to 50 countries and that number has gone up to 80 now

READY TO GERMINATE Apart from the promoters taking a keen interest in research that benefitted their trade, an unwavering focus on diversifying its client base has held the company in good stead. Rajeev recalls how the founders would go about their homework in the early days, “We would travel abroad and eat in an Indian restaurant two-three times before befriend-

Holding its own

Despite the turbulent business environment, Chaman Lal Setia Exports managed to sustain its topline ~ Crore

Net sales

Net profit

ROCE (%)

272 17 18.89

416 27 21.34

508 29 19.97

482 57 28.95

FY13

FY14

FY15

FY16

492 58 21.66

FY17 Source: Company

Outlook BUSINESS / 27 April 2018

69

FASTEST GROWING COMPANIES If we supply 100,000 kg in one country, 50,000 clients will try it. If they like it, other importers may also buy

Unlike KRBL & LT Foods, Chaman Lal Setia has not invested much in building its basmati brand Maharani

—SANKESH SETIA

—EKANSH MITTAL

Executive director, Chaman Lal Setia

#200 crore. Although he adds that the company has

70

stopped relying on Iran due to the frequent imposition of sanctions.

Like several other rice exporters, Chaman Lal Setia sources its grains from farmers in Punjab, Haryana, and western Uttar Pradesh. A miller has very little control over the variant and quality of the paddy cultivated. “We work with commission agents, who help with sourcing from farmers. The Indian Institute of Agricultural Research releases new varieties of basmati. But that adoption at the farm level takes time,” explains Vijay. Brother Rajeev also emphasises that they are prompt with payments, “We don’t default. That way you get a good price from the farmers as well.”

The management refuses to reveal names of countries that contribute the most to the company’s revenue but in general, Iran and countries in West Asia have been the largest buyers of Indian basmati variety. Ekansh Mittal, founder, Katalyst Wealth, who tracks the stock explains, “Other major players in the basmati exports space follow a model that is manufacturing-intensive. They have huge capacity and maintain large stockpiles. On the other hand, Chaman Lal Setia doesn’t operate with that kind of capacity and instead procures a lot of semi-processed rice. So growth is not subject to capacity. But it is about exploring new markets, and clients. If it is able to continue winning new customers, it will grow.”

BATTLING HEADWIND

fudged accounts. The Delhi-based flour brand Shakti Bhog Foods also entered basmati exports but soon folded up operations.

Rajeev reflects on why several of his peers didn’t do so well, “Given that it is an agri business, there has to be harmony between your capacity to source, process, sell, and the purchase/sale price. A lot of these players have not been able to do that.” Most of the casualties have been mills in Haryana and Punjab, who were engaged in basmati rice. Almost 90% of this variant of rice is consumed in West Asia. “If you have a presence in fewer markets and have limited buyers and if sanctions are imposed on those nations, then demand is disrupted. In 2015, the United Nations called for sanctions on Iran, due to which the country couldn’t pay Indian basmati exporters. The entire payment cycle was disrupted. Prices dropped sharply due to the glut in the domestic market. Around 30 - 40% of the market was blocked due to Iran’s inability to pick up stock,” explains Ashok Agarwal of KLA Group in Uttarakhand. That eventually resulted in inventory being carried forward to the next year. “This was the primary reason why the mills shut down and some of them were already facing financial issues.”

Chaman Lal Setia’s sales stagnated to #500 crore in the past two years, but the Setias are hopeful of that number rising to #750 crore for FY18. Of this, about 75% is contributed by exports alone. Mittal further expands on why the other mills have closed while Chaman Lal Setia managed to tide over troubled waters, “It is a highly capital-intensive business. Many players created huge capacities leading to oversupply and when demand slumped, they went bust. On the other hand, Chaman Lal Setia’s asset-light model helped it remain debtfree. Its inventory turnover ratio is higher than KRBL and LT Foods.”

Sankesh attributes part of the spurt in revenue to the suspended operations of the other mills. However, diversification continues to be the reason that Chaman

At a time when most rice exporters were shutting shop, Chaman Lal Setia managed to survive thanks to diversification and an asset-light model

The past five years have been nothing but turbulent for the basmati rice exports industry. There have been temporary import bans from countries such as Iran, which happens to be the largest importer of this variety of rice.

Consequently, a lot of basmati rice exporters have shut shop. REI Foods, which was a listed entity and claimed 22% of global exports at one point, filed a liquidation plea last year. Bush Foods, a Haryana-based export house, in which a Qatar company invested #540 crore in 2013, went bankrupt amidst a charge of 27 April 2018 / Outlook BUSINESS

Founder, Katalyst Wealth

Fast in, fast out

Chaman Lal Setia’s sourcing efficiency shows up in an inventory-turnover ratio that is better than its peers Inventory holding period (in days)

Average cash conversion cycle (in days)

338 382

49 79

208 223

Kohinoor Foods

Chaman Lal Setia

KRBL

133 160

LT Foods Source: Katalyst Wealth

Lal Setia has managed to stay afloat. Vijay feels that while there have been attempts to tap markets across the world, there might be a positive development from neighbouring giant — China. “They consume sticky rice, but in some regions they are also opening up to long basmati rice. It can be a big market for us in the future,” he says with hope.

The past may have been muddled with instability for rice exporters in India, but the future certainly looks bright. Chaman Lal Setia Exports seems to

have smartly grown with a low-risk diversified model.

But Mittal points out a downside to this approach, “It has not invested so much in the brand ‘Maharani’. If you look at KRBL and LT Foods, their brands are very strong and that gets them a premium. Their gross margins are around 30% while it’s 20% for Chaman Lal Setia.” However, for now, the Setias seem to be content with a model that has insulated them from the vagaries of the trade, and delivered growth year after year. b

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Holida ays with a Difference Interact with local communities, witness the creation of splendid arts and crafts and marvel at the beautiful and varying landscapes of these off-beat destinations. From solar-powered farmstays and restored heritage homes to eco-friendly jungle lodges, meet the people who've made it their life's mission to promote sustainable practices and responsible tourism

An

Evening of

Travel Tales

The Outlook Traveller Awards 2018 were all about celebrating the best of the best in the travel industry. And there were some riveting travel stories too

The storytelling quartet: (left to right) Muzaffar Ali; Aman Nath, Anupamaa Dayal; and Indranil Kar

POWERED BY

LUXURY ADVENTURE PARTNER

ASSOCIATE PARTNERS

CELEBRATIONS PARTNER

ONLINE PARTNER

HOSPITALITY PARTNER

AWARDS 2018

WINNERS

READERS’ AWARDS

T

he stage was set, the lights were lit and excitement brewed as everyone got ready for the 2018 edition of the Outlook Traveller Awards on March 29. The banquet hall at The Grand New Delhi was filled with travel enthusiasts, eminent personalities and, of course, the jury members. Since its inception, Outlook Traveller has brought to its loyal reader base the best in travel—from new ideas and concepts, to old destinations in a new light, treks and trails, accommodation and operators, and, of course, helpful tips so that a traveller has umpteen options to choose from. The Outlook Traveller Awards honour the best of the best—from Indian states to international countries, adventure to wildlife, hotels to luxury camps. It’s a night the Indian travel industry waits for with barely concealed eagerness.

The prestigious awards are divided into two—the readers’ choice and jury. This year, the jury members included Aman Nath (chairman, Neemrana Hotels), Manish Amin (co-founder and CIO, Yatra Online Pvt Ltd), Romit Theophilus (director, German National Tourist Office), Milind Bhide (founder, Countryside Holiday Adventures) and Amit Dixit (editor, Outlook Traveller). These eminent individuals deliberated to come up with the winners for 14 categories such as best new tourism initiative and best state and city for tourism, among others.

Thanks to Dulux (powered by) and the various partners, Smartwater and Travel Tours (associate), Yatra (online), The Ultimate Travelling Camp (luxury adventure), The Grand (hospitality) and Kingfisher (celebration), the night began with chief guest Muzaffar Ali regaling the audience with his travel tales. The state of Kashmir has always been a muse to the eminent filmmaker, poet and writer, and his stories left the audience with a deep sense of wanderlust.

Aman Nath’s anecdotes had a mesmerising effect on the audience.

The writer and hotelier, who has multiple interests as he navigates this diverse country where ‘less’ is philosophically understood as ‘more’, had the guests laughing their heads off with his stories. Designer Anupamaa Dayal’s animated speech about the colours of the country and adventure tour operator Indranil Kar’s presentation on the mountains left everyone inspired.

And last but not the least, the awards took centre stage. As each nominee was announced, the audience waited with bated breath to catch the name of the winner. Each win was followed by thunderous applause, right up till the last award was announced. As the guests indulged in a lovely dinner spread, the wine and beer flowed freely. Old friendships were renewed and, of course, travel tales were exchanged.

HILL Himachal Pradesh BEACH Goa DRIVE Shimla–Keylong, Himachal Pradesh WELLNESS AND SPIRITUALITY Kerala INTERNATIONAL Switzerland INTERNATIONAL WILDLIFE Kenya INTERNATIONAL WEDDING Italy INTERNATIONAL ISLAND Mauritius INTERNATIONAL ADVENTURE New Zealand AIRLINE Emirates FESTIVAL Hornbill Festival, Nagaland Rann Utsav, Gujarat TRAVEL BLOGGER Archana Singh, Travel See Write TRAVEL INSURANCE ICICI Lombard

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AWARDS 2018

JURY AWARDS STATE FOR TOURISM Arunachal Pradesh CITY FOR TOURISM Lucknow NEW TOURISM INITIATIVE Sunder Nursery Park, Aga Khan Trust NATIONAL PARK Sunderbans National Park, West Bengal BIRDING Thattekad Bird Sanctuary, Kerala ADVENTURE TOURISM Ladakh, Jammu and Kashmir

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ADVENTURE TOUR OPERATOR Unventured LUXURY TOUR OPERATOR Abercrombie & Kent OUTBOUND TOUR OPERATOR SOTC LUXURY HILL RESORT Glenburn Tea Estate, Darjeeling

10 1. The winners pose for a photo-op; 2. Renu Kundaliya, Manager, Trade Sales, MTPA, receiving the award from Gaurav Luthra, President, Corporate Traveller and Head of Products & Supplier Relations, FCM Travel Solutions; 3. Sameer Pathak, GM, Coca Cola India felicitating Husna Tara Prakash of Glenburn Tea Estate; 4. Lisapila Anar, PRO, Government of Nagaland, receiving the award from Parth Udia, Head of Marketing, Akzonobel India (Dulux); 5. Daniele G. Sfregola, Consul, Embassy of Italy, receiving the award for Best Wedding Destination; 6. Vijay Wanchoo, GM, The Imperial, New Delhi receiving the award; 7. ICICI Lombard being felicitated; 8. Ratish Nanda of the Aga Khan Trust being awarded by Rajesh Mishra, Head, Yatra Journeys; 9. Ritu Sharma of Switzerland Tourism with her award; 10. Rajnish Sabharwal, COO, TUTC felicitating Zubair Kutty, Deputy Director, Kerala Tourism; 11. Soman Sreenath Pathy and Kingshuk Biswas of Gujarat Tourism receiving the award; 12. Aarti Shastry of Unventured being felicitated; 13. Rajnish Rai, Head of Sales, TUTC talking about their offerings

LUXURY BEACH RESORT The Leela Raviz, Kovalam HERITAGE HOTEL The Imperial, New Delhi CITY HOTEL St Regis, Mumbai LUXURY WILDLIFE LODGE Evolve Back, Kabini

FASTEST GROWING COMPANIES

76

It took us over two years to win our customer’s confidence and we’ve earned their approval. Out of a 100-point rating we scored 90 —ALLURI INDRA KUMAR MD, Avanti Feeds

27 April 2018 / Outlook BUSINESS

RA CHANDROO

77

Seasoned catcher

A boom in the shrimps business is driving Avanti Feeds’ growth, but its Holy Grail lies in the processing business. Can the AP-based aquaculture firm do an encore?

Sales (5-year CAGR, %) — 38 NET PROFIT (5-year CAGR, %) — 73 ROCE (5-year AVERAGE, %) — 50

Outlook BUSINESS / 27 April 2018

FASTEST GROWING COMPANIES V Keshavdev

M

any men go fishing all of their lives without knowing that it is not fish they are after.”

The quote by author Henry David Thoreau in some sense summarises the way 56 -year-old Alluri Indra Kumar has gone about building Avanti Feeds, which has today emerged as the country’s biggest shrimp feed company with over 40% market share and a nascent but promising shrimp processing business. Kumar’s tryst with destiny began in the ’90s when the aquaculture wave first hit India, especially in the southern belt. Sensing an opportunity in the feed space, till then dominated by MNCs, Kumar, then in his 20s, convinced his father, who was in the tobacco processing business, to make the switch. It was in 1992 that Avanti Feeds came into being and two years later, Kumar got a technical collaboration going with Ping Tai Enterprises of Taiwan.

78

Five years later, in a step that would mark the company’s forward integration, Avanti forayed into shrimp processing after it bought out an existing unit for #2 crore. That’s the time Pramod Ranjan, who was exclusively exporting shrimps from India to Australia, met Kumar through an agent as he wanted to explore an opportunity to export to the US. “In the very first meeting, Kumar came across as a hands-on guy keen to make a mark in his business, and, most importantly, a person whom I could trust implicitly both in terms of integrity and capability,” mentions 50 -year-old Ranjan, who now besides the seafood business also heads his family-owned Oriental Hotels, in which Indian Hotels Company holds 32% stake. That Kumar wanted to be taken seriously was proved when, in a bid to make a breakthrough in the US shrimp market, he pulled down the very unit that Avanti had bought for #2.5 crore. Darden Restaurants, the Orlando-based multibrand restaurant operator, had sent its head of quality assurance down to India in 1999. “When he visited Avanti’s unit, the gentleman suggested several changes in the production flow that required a major revamp at the plant,” recalls Ranjan. Despite the significant cost involved, Kumar took his chance. “My dad wasn’t convinced but allowed me to take the call,” adds Kumar.

Though twice the acquisition cost, given the upgrade cost an additional #2 crore, the decision altered Avanti’s growth trajectory. “His desire to stay ahead reiterated my faith in him as a long-term player and that partnership has continued,” says Ranjan, who bought the first consignment of Avanti’s shrimps into the US in 2000.

Even as Avanti was building up the processing business, there was trouble in store for the feed business.

“The second-gen at Ping Tai was enamoured by the IT boom that had swept Asia and chose to exit the feed

business,” recalls Kumar. But that was not the only jolt for Kumar, who faced a personal tragedy when he lost his father in 2002. “Although the business was my idea, he was always the person I looked up to for advice and guidance. It was personally a challenging phase for me,” he confides. Yet the biggest decision that paid off for Kumar was to seek out a technical alliance with Thai Union Frozen Products — Thailand’s biggest seafood and feed producer — in 2003. But as providence would have it, it was post 2009 that a new chapter began in Avanti’s growth story.

BLACK AND WHITE Thanks to the aquaculture boom, Andhra Pradesh — with a coast line of 974 km and 1.75 lakh hectare brackish water area — emerged as the hub of shrimp production. Until 2009, India was only farming black tiger shrimps but was no match to South East Asian nations such as Thailand and Vietnam, the biggest players then in the market. The downturn of 2008 proved to be the proverbial nail in the coffin as black tiger shrimp exports plummeted amid a growing preference for pacific white shrimp, also called as Litopenaeus vannamei, thanks to its lower production cost and higher yields.

Between FY02 and FY08, Avanti clocked an average turnover of #158 crore, but sales slumped to #73 crore with a loss of #10 crore in the crisis-ridden FY09. “It was a challenging phase but the efforts that we put into realigning the business paid off,” claims Kumar.

To begin with, the company had to convince farmers of the need to switch to the new shrimp breed by closely interacting and training them. A practice that has since continued with a team of 240 officers always out on the farms. Kumar explains how feed conversion

The biggest decision that paid off for Avanti Feeds was its technical alliance with Thaliand’s biggest seafood and feed producer in 2003

27 April 2018 / Outlook BUSINESS

®

FASTEST GROWING COMPANIES

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We expected India to gain from white shrimp farming, which is our expertise, so joining hands made sense

Feed accounts for 5060% of the total production cost. Our feed will mean huge savings for small farmers

—WAI YAT PACO LEE

—KK VIJAYAN

Director, Avanti Feeds

Director, CIBA

ratio (FCR) is important for shrimp farmers, “Since shrimps have the lowest FCR , they need the least amount of feed per unit of body mass, and, hence, are most profitable for farmers. On an average, 1.5 kg of feed yields 1 kg of shrimp. Unlike fish, which come up and eat feed, shrimps eat at the bottom. Hence, the feed should also not disintegrate too early.”

From a market share of just 7% in FY09, Avanti rode the boom in vannamei shrimp cultivation that saw India overtaking its South East Asian neighbours to emerge as the single largest shrimp supplier to the US. In a strategic move that was also a fi rst in the domestic shrimp feed industry, Thai Union picked up a 15% stake in Avanti Feeds. “We knew that just as Thailand had gained from black tiger shrimp farming, a similar phenomenon would play out in India and since we were also strong in white shrimp feed formulation, joining hands made sense,” explains Wai Yat Paco Lee, Thai Union’s director on the board of Avanti Feeds. Thai Union’s bet did pay off as Avanti’s feed business just exploded from #38 crore in FY09 to #2 ,346 crore in FY17, growing at a CAGR of 58% and it continues to grow with revenue up 28% y-o-y to #2,085 crore in the first nine months of FY18. Catering to over 13,000 shrimp farmers across the country, shrimp feed now accounts for 86% of Avanti’s revenue. Andhra remains the biggest market, contributing 50% to the feed business and is a state where Avanti reaches out to over 8,000 farmers.

Mannamei is the company’s flagship brand bringing in 90% of the revenue, while brands, Titan and ProFeed, for black tiger shrimps account for the balance.

The other big players in the market include the likes of Thailand-based CP Aquaculture, Waterbase, Cargill and the likes. The feed, which is a balanced mix of dried fish powder, de-oiled soya cake and white flour, is sold in 25 -kg bags and currently retails at an average of #80 per kg. While small farmers carry out aquaculture in less than 5 acres of land and account for a majority (75%) of Avanti’s revenue, the big farmers with over 100 acre-plus farms bring in the rest.

What has also made the growth enduring for Avanti is the shift from a credit-based system to a cash-based one. Prior to 2009, feed was sold on credit to dealers, who, in turn, would sell it to farmers on credit. But when exports fell post 2008, a lot of farmers struggled to pay their dues, thus increasing the pressure on Avanti’s working capital. “The idea to offer credit cost us dearly,” recalls Kumar. Today, the company sells feed to its 200 -member strong dealer network, on a cash basis, in lieu of a 5% discount. Nearly 85% of the feed business is cash-driven and the rest is offered on credit to dealers but against some collateral or a trade deposit. The move fetched huge dividends: a negative working capital and improved profitability have bolstered Avanti’s return on capital employed from less than 1% in FY09 to 63% in FY17.

The company currently has five plants, four in west Godavari in Andhra Pradesh and one in Gujarat. Thai Union held over 9% stake in the Gujarat feed unit but post its amalgamation with Avanti Feeds in 2012, the stake went up to 25%. With the recent commissioning of a 175,000 -tonne mill near Rajahmundry, Avanti’s total feed capacity has increased to 600,000 tonne per annum. Currently, the #6,000 -crore organised feed market has around 10 lakh tonne capacity and another 100,000 tonne capacity is in the pipeline. But there is competition from unexpected quarters. In 2016, the government-owned Central Institute of Brackishwater Aquaculture (CIBA) unveiled a new feed, Vannamei Plus, made out of locally available ingredients using indigenous technology. After successful trials in Gujarat, Andhra Pradesh and Kerala, where it received good harvest results, the institute is looking at bigger farmers making the switch. KK Vijayan, director of CIBA , believes the prices of branded feeds are on the higher side as companies have to incur marketing and distribution costs. “We have created a feed, which costs around #55 - 60 per kg, depending on the fishmeal cost, with the same protein content. Since feed accounts for nearly 50 - 60% of the total production cost, our feed will mean huge savings for small farm-

Catering to over 13,000 shrimp farmers in India, shrimp feed now accounts for 86% of Avanti’s revenue with Andhra Pradesh being the biggest market

27 April 2018 / Outlook BUSINESS

ers.” In Andhra, Karuna Raju, a farmer from Guntur district with 600 acres under Vannamei cultivation, invested #1.5 crore to build a feed mill using CIBA’s technology to produce Vannamei Plus for his 50 hectares of shrimp farm. “Besides using it for captive consumption, we are also selling it to small farmers at #60 a kg.

With a production cost around #55 -56, it’s a decent 10% margin,” mentions Raju, who is planning to ramp up production to 4 tonne per hour from the current 2 tonne per hour by 2019.

As long as shrimp prices are above production costs, farmers make money. But if shrimp prices stay lower and feed prices go up, they will incur a loss. For now, Avanti Feeds is raking it in. As of 9MFY18, while the feeds business clocked revenue of #2,085 crore, profit came in at a record #493 crore against #285 for the whole of FY17. In gross margin terms, that’s 23.64% — a record high in the history of the company. Though shrimp prices vary depending on season and demand, currently because of an extended winter season in the US, shrimp prices have fallen. The rates for 40/30 count shrimp are quoting at #290/kg against #400 last year and #390 a kg against #500 last year. The cost of production is currently hovering around #200 per kg of shrimp. “In the current set-up, farmers are fi rst in line to take a hit rather than the companies. If the cost of production increases and shrimp prices fall, the impact is much more severe on farmers than the companies,” points out Vijayan, who is seeing CIBA’s feed gain ground in Tamil Nadu, Kerala and Gujarat. Waterbase is also in talks with the institute to source the technology. Kumar though is not perturbed by the development. “Companies can influence dealers but it’s ultimately the customer who is making the fi nal call.

Pricing is not the issue. If the FCR is poor, then even if the price is low and the farmer has to double the feed for a similar output, so where’s the advantage? All shrimp feeds tend to have protein content of 36% and fat at 5%, but quality comes from the formulation as there are 15 different types of ingredients,” explains Kumar, adding that sustainable margins in the feed business always hover around 10 -12%.

Given that the feed business is largely a domesticfocused one and accounts for a lion’s share of revenue, Avanti has to look beyond its core business to keep growing. Lee agrees. “Avanti already has a large market share in feed but to grow the business at the same rate as it did in the past is difficult. At best it can grow in line with the overall market, but the shrimp processing business will grow faster.” Echoing Lee’s views is Sumeet Nagar, who had invested in the stock five years ago after a year-long due diligence. “Globally, processing is twice that of the feed business. For Avanti, processing is just a fraction of its overall business and, hence, we believe it can be 10x bigger than what it is today,” says the co-founder of Malabar Investments.

GROWTH PROCESSOR While there is enough and more competition in the shrimp processing business with players such as Anjaneya Foods, Devi Sea Foods and the likes, Avanti has created a niche by piggybacking the heft of its Thai partner, one of the biggest seafood importers in the US. “We are not concerned about competition as we are not acting as partners but as a stakeholder in the business,” says Lee. In 2015, Avanti had carved out its frozen shrimp processing business as a separate entity in which Thai Union picked up 40% stake. “We are the

Rising with the tide

Buoyant demand coupled with smart working capital management has lifted return ratios ~ Crore

Shrimp feed

Shrimp processing

Wind mills/power

ROCE (%)

64 55 30 9

52 48 2 5

38 33 3 -3

53 41 2 1

133 73 2 9

271 120 2 33

502 144 2 29

857 272 2 52

1,507 267 2 65

1,730 286 2 64

2,346 385 1 63

2,085 472 2 NA

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Source: Ace Equity, Ambit Capital research; Note: Shrimp feed is domestic business and shrimp processing is export-driven; FY18 numbers are for nine months ending December 2017. Power is largely for captive consumption and balance is sold to Karnataka Power Transmission Corporation

Outlook BUSINESS / 27 April 2018

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FASTEST GROWING COMPANIES

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The duties will have minimal or no impact on shrimp exports to the United States as long as they stay below 5%

For Avanti, processing is just a fraction of its overall business and, hence, we believe it can be 10x bigger than what it is today

—PRAMOD RANJAN

—SUMEET NAGAR

MD, Oriental Hotels

MD, Malabar Investments

biggest frozen seafood player in Thailand and one of the biggest internationally. Hence, we believe we can add more value to the processing business,” adds Lee. From a turnover of less than #50 crore in FY08, the shrimp processing business has grown to #472 crore as of 9MFY18. Sensing the growing opportunity, Avanti has increased its processing capacity of 6,000 mtpa with a recently commissioned plant to 21,000 mtpa. Currently, at 14%, Avanti, which sources shrimp from 400 contract farmers, aims to increase the share of the processing business to 40% by FY22. “Shrimp being a commodity is prone to fluctuating prices, large end user customers such as restaurant groups, prefer to lock-in their prices for a whole year thus taking out the uncertainty factor.

This is where different forms of contract farming will eventually evolve and companies such as Avanti can leverage their relationships with shrimp farmers to enter into contracts,” feels Ranjan. Currently, Avanti caters to leading restaurant chains such as Red Lobster Hospitality, Darden Restaurants and distributors in the US such as Arista Industries, aided

by Chicken of the Sea, one of USA’s biggest importers owned by Thai Union. With over 15 prominent customers, the US accounts for over 65% of revenue, while European Union accounts for the rest.

It’s no small achievement that Avanti has got a foothold in a market where shrimp consumption has been growing rapidly over the past decade — Americans consume 4.4 lbs per person. Total US shrimp imports topped 664,000 metric tonne worth $6.54 billion in 2017, with India emerging as the biggest exporter at 213,956 tonne worth $2.17 billion. Since the past few years, India has maintained its lead over Thailand, once the US’ biggest source of shrimp before it was affected by a disease outbreak. Though Indonesia has emerged as the next big exporter, Nagar of Malabar believes that unlike India most South East Asian nations are limited by their geographies along the coast.

While the US remains the biggest market for Avanti, it has managed to break through in Japan, which has stringent quality norms. In the past, Indian consign-

ments were rejected owing to ethoxyquin contamination as in Japan such residues cannot exceed 0.01 part per million in any shipment. “It took us over two years to win our customer’s confidence and we’ve earned their approval only recently. Out of a 100 -point rating we scored 90,” reveals Kumar without naming the client. The order is for value-added shrimps such as Tempura and the likes. While shrimp processing fetches Avanti an average realisation of 8 -10%, value-added products will ramp it up to 10 -15%. Avanti is also looking at cultivating sea bass, a protein-rich fish that enjoys high demand both locally and overseas.

Though the US has raised anti-dumping duties on Indian shrimp from 0.84% to 2.34% and the EU has made inspection norms more stringent for aquaculture products sent from India, industry experts do not expect the move to derail India’s gravy train. “The duties will have minimal or no impact on shrimp exports to the US as long as they stay below 5%,” says Ranjan. The reason — the current shrimp price in the US is around $4 - 4.50 per pound (tail-on variety) and an increase to 2.34% won’t have a significant impact. Structurally, India remains a key market for the US and that is underscored by the recent deal between Andhra-based Sagar Grandhi Exports and Aqua Star, a top supplier of frozen seafood in North America. With a strategic partner, Avanti is already vertically integrated in the global supply chain and is now aiming to be a $1-billion company in three years — through both organic and inorganic means. On the possibility of acquisitions to boost its presence in the US, Kumar says, “We will look at what’s good for the company and that option is always open.”

Over the past decade, Avanti’s stock has seen a 72x jump from #32 (2013) to #2,310 (April 6) against an over 3x gain in the benchmark Sensex. Nagar though has used the euphoria to sell part of his holding.

“While we believe the company has strong fundamentals, it’s still a cyclical business,” he avers. But the fact that promoters haven’t sold into the rally could be an indication that the best is yet to come. b

From a turnover of less than #50 crore in FY08, shrimp processing has grown to #472 crore as of 9MFY18 and Avanti has increased its capacity accordingly

27 April 2018 / Outlook BUSINESS

c’est la vie GOOD LIFE Spruce up your home with these premium rugs THE PURSUIT OF HAPPINESS Cirque du Soleil’s Stefan Haves on the art of clowning HIGH FIVE Quess Corp’s CMD Ajit Isaac on fostering a culture of empowerment at the workplace

| MY FAVOURITE | APURVA PUROHIT, PRESIDENT, JAGRAN PRAKASHAN

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VISHAL KOUL

I’m a voracious reader — you could say I was born with a book in my hand. It’s hard to pick a favourite for a compulsive reader like me, but two of my favourite books are Sapiens: A Brief History of Humankind

by Yuval Noah Harari and The Conquest of Happiness

by Bertrand Russell. I feel that the latter, although written in 1930 is extremely contemporary.

I’m always up for an old fashioned mix of Gin and Campari with a vibrant blend of flavours made by my husband.

The Queen written

by Peter Morgan is my all-time favourite film. The screenwriting is phenomenal and conveys the inherent pressure of wearing the crown and director Stephen Frears does a fine job of putting

forth a well-orchestrated show. I was particularly floored by Helen Mirren’s portrayal of the monarch and the way she impeccably showcases the royal dilemma.

Sports has always been an integral part of my life. I’ve been a true blue hockey player and have also represented the state of Tamil Nadu in 1986-87. Every now

and then, I enjoy watching a tennis match.

London certainly tops my list — the warm and endearing welcome it extends to anyone who visits is what a truly international city should do. I quite fancy the British wit; whether it’s the doorkeeper or the London taxi driver. Most of all, I look forward to visiting the London Theatreland. b Outlook BUSINESS / 27 April 2018

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27 April 2018 / Outlook BUSINESS

| THE PURSUIT OF HAPPINESS | c’est la vie

Cirque Jester IT’S NO JOKE, MAKING PEOPLE LAUGH IS HARD WORK SAYS STEFAN HAVES, COMIC ART DESIGNER AT CIRQUE DU SOLEIL Somdyuti Datta Ray

W

hen you hear the word clown, does your mind conjure up an image of Stephen King’s Pennywise — the ghastly one who preys on children, or is it someone more lovable like Charlie Chaplin? If it is the former, then Cirque du Soleil’s comic act designer, Stefan Haves has a thing or two to teach you about these misunderstood characters. “I work in an area of the performing arts that people hate,” he says.

The impresario, who works with the globally acclaimed circus and entertainment company, spends a lot of his time training aspiring clowns on how to be brilliant.

This in addition to directing clown acts for the company’s shows and

SOUMIK KAR

working on his book. Haves’ foray into theatre and clowning goes way back to his school days. Being a “terrible student”, he found solace in performing on stage and on the basketball court. Excellence in the latter earned him a seat at a theatre school and an entry ticket to an elite Master’s programme. But, he got bored soon enough. The desire to learn about the art of clowning made him drop out of school and perform on the streets of Paris instead. He recalls his time in the city as a budding entertainer, “Paris gave me a mission in life and I followed my bliss in that moment.”

Today, Haves is notably known for his comedy contortion act ‘Backman’ and critically acclaimed shows such as, Your Town Follies, Cirque-A-Palooza and The Call of the Wild. He lets in on the secret of what makes a ‘imperfect but loveable’ clown. After all, there is no such thing as a perfect clown, he informs. “Clowning isn’t that much different from acting. The only difference is that you have to deal directly with the audience. You’re no longer a character dealing with

just characters,” he explains. So, what else makes a great clown?

Humility, compassion and empathy, he adds. “The clown may be an idiot, but you will still like him.

A buffoon makes you laugh, but a clown makes you happy.”

When not on stage or teaching a clowning class, Haves has a pretty neat schedule for his spare time.

Off-times are spent hiking, swimming or travelling with friends.

After months of long-running productions, you might certainly spot Haves at Burning Man — an annual gala at the Black Rock Desert in Nevada, US. “I recently bought a big land in north San Francisco with 10 friends. We want to build something up there soon,” he adds excitedly.

Though he’s responsible for spotting talent from across the globe, training them and putting up a remarkable show, Haves continues to make time for standalone shows on Broadway. Looking back at his journey, Haves emphasises on the importance of understanding the audience and adjusting accordingly. He elaborates, “Beginners get uncomfortable when the set-up [to a joke] is not funny. But since I’m older, I now know that the big payoff waits at the punchline.” And for times when things don’t work out, he has some advice that very well applies to all fields of work: it’s all about keeping perspective. b Outlook BUSINESS / 27 April 2018

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c’est la vie | HARDBOUND |

MG PARAMESWARAN, FOUNDER, BRAND-BUILDING

Getting it right

T

he Valentine’s Day of the year 2018 in my mind belongs longs to a girl from Kerala. Her ‘eyebrow-lift wink’ perfo formed in a blink-and-miss scene in an innocuous Malaya alam movie song, became the social media sensation of the month, at least till the diamond heist [or should I call it the PNB heist] h started grabbing headlines.

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What makes something as innocuous as a ‘wink’ go viral? And can any lessons be learnt from that? The obscure Malayalam song did not have the heavy duty star power of yet another viral hit that we saw in India a few years ago: Why This Kolaveri Di. At least that song had the power of a big Tamil film star.

In his book The Content Trap, professor Bharat Anand of Harvard Business School explains how content creators need to learn new tricks to survive in the digital age. Anand says, “The process of creating content has not changed much in some do-

mains [such as writing a bo k ook or performing at a concert]], while it has changed radically in others. But in every case, managing contentt couldn’t be more different than it was even a few years ago. The reason is connectiions”.

All content creators [the a author included] live in a mindset that he calls ‘content trap’. This makes content creators obsess over isolated triggers rather than recogr nising the conditions that m k make them spread. It makes them m take efforts to preserve con ntent, and not focus on grabbing the t opportunities around it. Th hey

SOUMIK KAR

Insights IS A TRADE WAR WHAT THE US JUST NEEDS? The beginning of year 2000 changed a lot of things for the United States. In this research paper, Kerwin Kofi Charles, Erik Hurst, and Mariel Schwartz from the University of Chicago have studied one of them—long run decline in employment rates among less educated workers between the ages of 21-55 from 2000 to 2017. and this paper studies the reasons for why and how it happened. After analysing the data across all regions and sectors, it was found that upgradation of skill-sets for the evolving manufacturing sector, consolidation among private players, deaths of workers due to drugoverdose, reduced propensity of workers to shift across regions are to be blamed. The paper suggests a trade barrier (like import tariffs) to create employment in the US, but researchers are well aware that it is unlikely to benefit larger section of less educated workers.

Paper: The Transformation of Manufacturing and the Decline in U.S. Employment

27 April 2018 / Outlook BUSINESS

Source: NBER

THE CONTENT TRAP AUTHOR: BHARAT ANAND PUBLISHER: RANDOM HOUSE PAGES: 464 | PRICE: #1,204

define narrow boundaries. And finally content creators look for the best practice believing that there is one right approach, while there may be none.

For example, my own wonderment is about the fact that what worked for Kolaveri Di was not what worked for the ‘eyebrowlift wink’ song. Professor Anand argues that the way out of this chakravyuh of the content trap is to discover the power of connections and the author has outlined three such connections — connections between users, connections between products and connections

across an organisation’s activities.

These taken together can lead us out a content trap.

Unlike most American professors, Professor Anand has looked at examples from around the world.

The way a small newspaper wo in Scandinavia managed to escape the death spiral that all newspapers are in; or how The New York Times succeeded in creating a pay wall after failing once by offering several options and understanding what its readers wanted. Indian examples such as the rise of Star TV on the back of Kaun Banega Crorepati gets an in-depth analysis in the book.

The examples drawn from diverse content domains, newspapers, music, television, digital media, all of them fi nd mention.

This is not a book meant for light aircraft reading, unless you are flying to an important meeting at your New York City head office to unveil the content strategy for your brand. It is a must-read for anyone in the media, entertainment and content creation business. But I think it is also a very useful read for all marketing professionals, who are struggling with the concept of content marketing. b

DIVIDED BY FAKE NEWS The 2016 presidential election campaign in the United States saw a prevalence of fake news and misinformation. Stony Brook University’s Marina Azzimonti and Marcos Fernandes, in their research paper, have looked at how the opinion exchange among individuals based on fake news is polarising society. The paper doesn’t provide any conclusion but highlights the danger of this fake news trend. They believe that being the primary tool for the spread of fake news; social media will do more harm than good in the future.

Paper: Social Media Networks, Fake News, and Polarization

Source: NBER

HAVE YOU READ...

WEAPONS OF MATH DESTRUCTION AUTHOR: CATHY O’NEIL PUBLISHED: SEPTEMBER 2016

WHAT IS IT ABOUT? Algorithms and data play a crucial role in our life and in this book, the author decodes the role of data and how oblivious we are to its manipulation. She busts the myth that predictive data models are neutral and demonstrates her case with the help of algorithms, theories and anecdotes.

KEY TAKEAWAYS It highlights the prominent dangers of data abuse. From calculating university rankings to targeting micro-voters using social media sites, data has left nothing uncorrupted. The author wants us to know that mathematical tools are just models, not our masters.

WHY READ IT NOW In recent times, data has created a lot of chaos than order. It is time that one understands that algorithms can be manipulated to misrepresent reality.

QUOTABLE QUOTES “Big Data processes codify the past.

They do not invent the future.”

Outlook BUSINESS / 27 April 2018

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c’est la vie | GOOD LIFE |

Art Underfoot MAKE YOUR HOME PICTURE-PERFECT WITH THESE PREMIUM ARTISTIC RUGS Naini Thaker

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our home is your haven — be it a luxurious three-bedroom overlooking the sea or a cityscape setup. And when it comes to home dÊcor, surely you would want to ensure that it looks nothing less than perfect. Splash it with colours, keep it minimalistic or adorn it with antiques — the possibilities are endless. It can also be something as simple as a rug that not only completes the perfect setting but also adds the much-needed balance to your home.

Using contemporary designs and vibrant colours, Jaipur Rugs’ collections such as Chaos Theory, Unstring and Project Error make for rugs that are fit for any living space.

When it comes to handmade rugs from India, Jaipur Rugs is a brand you simply cannot miss. The company is known for its hand-knotted rugs as well as flat-weaves, dhurries, kilims, and hand-tufted rugs and primarily uses natural fibres such as silk, wool, cotton and jute. “We want to ensure customers get what they want, but at the same time provide sustainable livelihoods for our artisans. The idea is to bridge the gap between the two ends, the weaver at the grassroots level and the urban consumer,� explains Yogesh Chaudhary, director, Jaipur Rugs. In an attempt to revive the dying art of weaving, Jaipur Rugs is targeting people who have an affinity for art and culture, especially architects and interior designers.

27 April 2018 / Outlook BUSINESS

Using contemporary designs and vibrant colours, its collections such as Chaos Theory, Unstring and Project Error make for rugs that are fit for any living space. And the Artisan Originals, a collection of one-of-akind rugs designed by individual weavers, is worth every penny. The brand is also known for its collaborations with renowned designers — the latest addition to their portfolio is Tattvam by Gauri Khan. Jaipur

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FINE WEAVES: 1. Cocoon Fine Rugs’ collection double as wall art for home and office spaces; 2, 3, 4. Jaipur Rugs is known for its hand-knitted and flat-weave rugs; 5.

Obeetee fuses traditional method with modern computer techniques

Rugs’ exquisite collection ranges from #1.5 lakh to #10 lakh.

Another such company is Cocoon Fine Rugs, which focuses on designs inspired by classical Persian designs and styles of contemporary artists. Each one has a story to tell, be it ancient folklore or its creator’s inspiration, and each is called ‘Objet D’Art’. “Our rugs are also used as wall art in homes, offices and other spaces owing to the versatility in size and design,” says Ayush Choudhary, founder & creative director, Cocoon Fine Rugs.

Their collection starts at #30,000 and goes all the way upto #8 lakh depending on the intricacy of work and the size of the rug. One of its latest collection was a collaboration with JJ Valaya, inspired by the city of Isfahan, a Persian city renowned for its architecture.

When it comes to these rug makers, the way the rug looks is not the only thing they focus upon; it

is as much about the techniques used to make these rugs. Take for instance Obeetee, which fuses the traditional method with modern computer techniques to create unique patterns along with innovative textures. Angelique Dhama, chief marketing officer, Obeetee, explains the carpet-making skill, “Some of our carpets have as many as 400 knots per square inch. So a 9x12 foot carpet comes to you with nearly six-and-a-half million knots.” Their latest collection, which was in collaboration with Tarun Tahiliani and Abraham & Thakore called Proud to be Indian, ranges from #5 lakh to #12 lakh, and showcases quintessential Indian design representing the country’s artistic rug heritage.

As far as home accessories go, these rugs are nothing short of a work of art, and quite possibly what your beautiful home might be missing out on. b Outlook BUSINESS / 27 April 2018

c’est la vie | HIGH FIVE |

“Provide opportunities for employees to participate in strategic decision-making” QUESS CORP CMD AJIT ISAAC ON FIVE WAYS TO CREATE A CULTURE OF EMPOWERMENT

1

DEFINE THE ORGANISATIONAL CULTURE:

The way a company works, reacts to situations, treats its people and decides what’s right and wrong in pursuit of its goals, defines the soul of the company. This is what influences the success of an organisation.

2

INVEST IN EMPLOYEE ENGAGEMENT:

Provide opportunities for employees to participate in strategic decision-making.

Whether it is by introducing open-door policies or hosting team building activities, it ensures everyone feels responsible and excited about meeting their goals.

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3

DEVELOP CUSTOMER-CENTRIC STRATEGIES: What the customer wants,

they should get, whenever they want it.

Empowered employees take decisions on the basis of perceived customer needs. Cash is a derivative of customer satisfaction, so don’t think about making money without satisfied customers.

4

FOCUS AND ACT WITH SPEED: Earlier, most businesses were designed for mere efficiency which would sometimes lead to inadaptability.

In order to compete and win in the rapidly changing business environment, the organisation must learn to quickly renew and focus only on goals considered key to creating value.

5

ENCOURAGE INTEGRITY AND TEAMWORK:

For an organisation to remain successful, it must be built on a culture of integrity and teamwork. This instills trust in customers and employees alike. A history of meeting expectations creates an empowered culture where employees are inspired to follow leaders and customers remain loyal. b

27 April 2018 / Outlook BUSINESS

DEEPAK G PAWAR

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