Sanjiv Goenka, head of RP-Sanjiv Goenka Group, spoke to CNBC-TV18 about the company's foray into the fast moving consumer goods (FMCG) space and his plans about listing CESC Ventures and Spencer's.
“FMCG has been on my mind for a very long time and we started working on it a long time ago. The origins came from a study that McKinsey did and they said you either get into IT naval services or FMCG. That is when we got into Firstsource. Since then FMCG has been pretty much on our mind and we have been waiting for the right time to launch,”Goenka said.
“It is very encouraging response, the products have been exceptionally well received,” he added.
Watch Here: Looking to expand FMCG business to Rs 10,000 crore in next 5-6 years, says Sanjiv Goenka
Edited Excerpt:
Q: At a very interesting and maybe difficult juncture, we know that power companies have been told that if within six months a solution is not found, they will have to be taken to the NCLT. Power companies are asking for more time. Do you see any solution to at least the large power companies?
A: There is hope and you always survive on hope. However, quite honestly, I think it is a question of the delta between the price at which you get the coal and the price at which you sell the power, and that at this point in time for many units is not remunerative. The coal linkages for power companies are valid only if they have a long term power purchase agreement (PPA). No discoms are getting into long term PPAs, so, therefore they are not getting coal as per the fuel supply agreement (FSA); which means you are buying coal on the spot market and the economics are completely going out of whack.
Q: In between we also saw the prices of power increasing. There were eight month PPAs, people were procuring, states were procuring for the short term. That does not work, rolling on shorter term PPAs?
A: A shorter term PPA is a much cheaper PPA. It is based on variable costs. So that is okay for the short term, but that is not even okay for the medium term.
Q: We were hoping that tariffs will be pushed higher as and when the raw material cost increases. In the last results that you reported, again one could see that regulators were not pushing up tariffs as quickly as they ought to be. Do you see that situation changing at all? Are state governments and discoms sensitized to the fact that they have to allow tariffs to rise?
A: I think by and large state governments would be conducive or would allow tariffs to rise, but certainly not in an election year.
Q: What about the resolution process, if you have projects which are completed but which are stranded for FSA or PPA, do you think they will find buyers?
A: Frankly I am not so sure.
Q: The idea of the committee of creditors (CoC) will be to at least reduce the debt. Say if they reduce the debt by 50 percent or so, will there be people who will be willing to buy now because they are available distressed and maybe in a year or two PPAs will come, won't they, after all when the next round of government's are elected?
A: It is a possibility, one cannot rule that out. However, to my mind, any such acquisition would be speculative in nature. So if I had to look at acquiring a power asset, I would look at an asset where at least 50 percent of the power sale is already tied up through a section 62 agreement and then you are more or less at a cash break even, then you can play on the remainder 50 percent. However, if not, then it is speculative. So it is pretty much like those mega power plants which were done in the past and all of them came to not.
Q: If you were to make policy, there isn't much time for the current government, maybe less than a year, what would you request in the form of a policy change that might make it work?
A: I think the electricity act of 2003 is brilliant. When Mr. Prabhu had actually created the framework of the act, he had discussed with all stakeholders and it is an absolutely brilliant act. There were certain changes made to it, the one change that was made to it that has impacted the power industry completely adversely is that FSAs are only applicable if you have a long term PPA. So to my mind, if you have a FSA, why should it be subject to having a PPA? It is not exactly as if you are going to run away with the coal or something like that.
Q: So perhaps a tweaking of the rules to ensure that if there is an FSA then loans should be given and the project should be treated as kosher?
A: Frankly, if you have an FSA, do not wait for a PPA to make the FSA effective.
Q: Where do you see your own position as a power generator and more importantly as a power distributor? Where are the expansions if any coming?
A: As far as power generation is concerned, we today stand at 2850 megawatts of capacity. Bulk of our capacities, almost 80 percent of them are linked to Section 62 PPAs which in a way secures us.
We will only expand in generation if we can get a distribution backed generation, not otherwise. However we would expand aggressively in distribution. We have taken up three cities in Rajasthan, our franchise in Noida is doing exceptionally well and we will look out for more and more such opportunities.
Q: Those discoms or those distribution contracts are fully backed by generation, there is no capacity over there?
A: They are not backed by generation but they are backed by supply agreements from the state governments.
Q: No scope to sign a PPA over there?
A: I hope they allow us to do it, I would be delighted.
Q: The state government will have to give you permission?
A: That is right. They want to sell their own power to these distribution companies.
Q: You don't see any scope?
A: I suppose there would be but it isn't there on the immediate anvil. Hopefully in the next 12-18 months something may emerge.
Q: Do you see any state coming to you or generally putting out discom tenders?
A: Yes. There have been dialogues with several states and they are contemplating this kind of a move. It takes some time for them to actually complete the process internally and then float the RFPs.
I think over the next 12 months, you will see 2 or 3 states doing that.
Q: You are among the best financially well provided for power companies - both distribution and generation, you are not showing so much enthusiasm for buying. Do you think that there will be PE companies or any other kind of funds who will be willing to buy the stranded power companies?
A: I am sure there would be a breed of buyers who would be interested. I am a cautious buyer, I buy for profit, I don't buy for speculation.
Q: What can the stranded power companies do, will it make sense to go into the NCLT and look for relief over there rather than prolonged pain?
A: I think so.
Q: The most interesting launch that we have heard from the Goenka's stable is this Too Yumm product. Tell us how you got into it, I never associated you with it. Carbon Black, even Saregama, even Spencer but we did not associate you with snacks?
A: FMCG has been on my mind for a very long time and we started working on it a long time ago. The origins came from a study that McKinsey did and they said you either get into IT Naval Services or FMCG. That is when we got into Firstsource. Since then FMCG has been pretty much on our mind and we have been working on products and we have been waiting for the right time to launch.
It is very encouraging to see that in the first 12 months we today are at Rs 500 crore beat rate and we are going at about 22-23 percent every month. So it is a very encouraging response, the products have been exceptionally well received.
I will share with you something that happened last week. There was a transport strike and so supplies were impacted. So this distributor came to our people and said that what is happening, you are not giving us supplies. So they said out of our 30 SKUs, we only have two. This distributor was taking about Rs 25 lakh regularly, he said give me two products worth Rs 25 lakh. So that is the first real strong sign of a consumer pull.
Q: What is your future plan, will you bring it to the market - when I say market I mean stock market?
A: Not immediately but you will see it. The holding company will of course be listed. This is CESC Ventures. However, this company will also get listed at some stage, but at a much later stage; once it is a lot bigger. We have many more plans, and so far it is only been guilt-free snacks, but you will see other categories coming in. Work is on at a frantic pace. We are already out to 3,90,000 distribution outlets which is like a phenomenal ramp up.
Q: That covers the entire country?
A: That covers the entire country, but we have to double this number in the next 12 months and fingers crossed.
Q: What is the timetable for listing CESC Ventures itself?
A: We have got the NCLT clearance. We are awaiting a clearance from the state regulatory commission which hopefully should come soon. So as soon as that comes, we will apply to Sebi for listing.
Q: So maybe we are a couple of months away?
A: I hope.
Q: Otherwise your entire demerger plan and listing plan is over, this is the last of it?
A: This is the last, yes.
Q: Waiting may be helpful because you will get a better valuation you think? You have a huge product in the portfolio.
A: The company is actually looking very good, sales are growing, products are gaining acceptance, we have got the right spot. There was nobody in the country who was offering guilt-free snacking and they taste good.
Yesterday somebody was in Tirupati and he sent me WhatsApp images of retailers and kiranawala's there and they had either Too Yumm or Lays and nothing else.
Q: What may be the size you are looking for your FMCG business, for your snacking business, how much is it already? I believe you have products even other than Too Yumm, so what is the total size of that FMCG piece?
A: FMCG today is at a beat rate of about Rs 500 crore. I think in the next five to six years our target is Rs 10,000 crore.
Q: So you will list only at that time?
A: No, we list somewhere in between.
Q: CESC Ventures will absorb the valuation of this potential giant?
A: Absolutely.
Q: While speaking about the listing of ventures, we should be speaking about Spencer as well. How have the footfalls been? Have you seen any improvement, after all FMCG companies are telling us that rural demand has picked up, urban demand also picking up, how have the footfalls been?
A: Very good. There was a slight slowdown post GST and we are seeing this picking up now very significantly. So, consumer interest in buying is picking up, consumers are picking up and you are seeing a different breed of people becoming consumers for Spencer's. So, that is a very big shift.
Q: You will be increasing stores there as well?
A: We are going to increase stores but our policy has been not to have reckless growth, not to have growth for the sake of growth but to have calibrated growth which is sensible and profitable.
Q: What about all the e-commerce challengers, are they taking away or are you also meeting them head on with e-commerce?
A: We have also launched e-commerce but we are not doing e-commerce for the sake of revenues only. We want to do e-commerce which is profitable. So, our mantra has been growth for profits.
Q: How big is the e-commerce piece?
A: It is still very small. We are doing it in three cities but we will scale it up over the next couple of months.
Q: What is Spencer's valuation plus the FMCG valuation? At the moment what can we expect for CESC Ventures? It is only these two right - Spencer's and FMCG?
A: Spencer's will be independently listed. CESC Ventures will have the holding of Firstsource plus the FMCG.
Q: So Spencer's when will the listing happen?
A: Same time.
Q: Together?
A: Yes.
First Published: Aug 9, 2018 12:10 AM IST
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