India is the only island of growth amongst the emerging markets, that's how the CEO of Reckitt Benckiser, describes India and though he doesn't see the country growing in high double-digit over the next two years, Rakesh Kapoor is indeed very bullish on the country and says the global FMCG giant is in for the very long haul.
New launches are going to play a big role in the company's growth and it is betting big on the government's Swachh Bharat programme. The company has recently developed two hygiene products designed for the use and consumption at lower end of the pyramid, says Kapoor.
Kapoor said India's story is not about a quarter or even a year, it is a very long-term story and companies that have a very long view on India will make the right choices and make India a very important part of their business as indeed we want to make.
Talking about their other commitments towards India, Kapoor says, "RB is totally committed to the program called 'Stop Diarrhea' and would be investing over USD 30 milion over a number of years".
Moreover, the company also looks at divesting non-core assets, tail brands to focus on driving their core businesses like health, hygiene and home, says Kapoor.
"Just a few years ago everyone was super excited about Brazil, Russia, India and China (BRIC). Everyone thought BRIC was the answer to economic challenges in the west but just a few years later Brazil is in a very tough place, Russia for both I would say political reasons but also economic reasons is not the same high profile economic growth that we have seen so in that context India becomes quite an island of growth for many companies. India remains very important not just for its own structural demographic and economic reasons but also in the context of global growth," he added.
Kapoor further said that the Association of Southeast Asian Nations (ASEAN), which has headquarters in markets like Singapore, Indonesia will revert to Singapore through the ASEAN regional headquarters.
"In the past India was reporting into ASEAN which was reporting into our developing markets headquarters but now we have brought India straight line into reporting into developing markets headquarters so India actually has gone up, not gone down in the hierarchy if you want to measure it like that but India of course is, has been and will be a very important force of growth for RB," said Kapoor.
Answering a query on acquisitions, Kapoor says the company has always been open to making aquistions if they make strategic sense and if they create added value to shareholders.
Below is the transcript of Rakesh Kapoor's interview with Shereen Bhan on CNBC-TV18.
Q: The last conversation that you and I had was sometime in November, you were very confident about the India story, you were very confident about the signals coming in from the Modi government. Today, while the headline growth number looks very good, everyone is talking about 7.5 percent plus growth for India - consumption continues to be a worry, agricultural distress is a concern at this point in time impacting rural discretionary spending. What is your sense about the Indian market and growth in India at this point in time?
A: I would like to say that I remain very positive about the India story because my own personal view is that India story is not about a quarter or even a year; it is a very long-term story. Companies that have a very long view on India will make the right choices and make India very important part of their business as indeed we want to make.
The second thing I would like to say about India is that nothing changes very quickly here. It is the biggest anchor that you can think of. As long as the path is straight we will get there. I don't think we need to get super excited about changes that take place but also not get underwhelmed when things do not move fast enough. This is India, as long as directional fable is good - it seems to be a good one I think we will be on the right track.
The third important thing about India which I see particularly from my eyes sitting in London is that just a few years ago everyone was super excited about BRIC. Everyone thought BRIC was the answer to economic challenges in the West. However, just a few years later Brazil is in a very tough place, Russia for both political reasons but also economic reasons is not the same high profile economic growth that we have seen. So, in that context India becomes quite an island of growth for many companies. So, India remains very important not just for its own structural demographic and economic reasons but also in the context of global growth.
Q: You are speaking about the challenges facing emerging markets at this point in time and there continues to be concern on the deceleration as far as emerging markets are concerned. Even on your India growth figures your sales rose by about 11 percent to Rs 4000 crore in FY14. You were anticipating a growth rate of at least 20 percent I understand. What is the kind of growth projection that you have now for India in FY15 and FY16?
A: I don't set targets.
Q: Is a 20 percent growth rate unachievable at this point in time given the state of affairs?
A: This level of growth, the very high double digit growth rates that we have seen and we have come to expect and come to aspire to for India, remains our aspiration. I don't think we are going to give up on that. Will I see that in the next quarter, could I see that in the next year? Perhaps not but I don't believe we should lower our bar, I don't believe we should lower the ambition.
Our ambition remains to grow at the same kind of growth rates that we have all enjoyed, come to expect and want to have from India, even if the next quarter or even the next year does not seem to be as good. So, I don't want to set a target for FY15 at least externally. However, I do think that markets will improve in FY15 over FY14 and hopefully that will carry on in FY16 and FY17.
Q: Let me ask you about some of the efforts that you have rolled out in order to optimise costs. Project Supercharge was announced by you in February 2015. The idea behind that is to drive margin expansion to enable cost savings between 100-150 million pounds in 2015 and this also involved in creating a simpler and more agile corporate structure. What will this mean for markets like India?
A: First of all I think, Supercharge is an important project for Reckitt Benckiser (RB). It has like you just said two major vectors. One vector is having a company which is faster to market, which is simpler to operate, which does not get bogged down by the complexities that we all see in our world today. So, how do we become more agile? RB has enjoyed the fantastic history of growth and outperformance over the number of years but when organisations become bigger they become complex.
One of my challenges is to make sure that we can keep this company simpler. So, we simplified our structure, we have made sure that inside the company for example we used to have two different area organisations – one looking after Russia, Middle East and Africa and the other one looking after Latin America, Asia-Pacific. We have combined those area organisations and provided a simpler governance and decision making structure here as one example of a simpler organisation. Removing the multiple decision making touch points that sometimes exists in large companies to simplify how we decide, how we go to market.
The other aspect is for larger companies to constantly interrogate their cost of doing business. I have always said that costs are like finger nails, they need to be cut from time-to time. This program of Supercharge is to look at all areas of cost and thinking about where we have waste, where we have duplication, where can we buy things cheaper? We have point of sale material that we buy in multiple markets on multiple brands around the world. Couldn't we buy them together, couldn't we buy them cheaper, and couldn't we simplify that?
Q: What about divesting assets which may no longer be core to you or divesting brands which may no longer be core to you?
A: That is something that we have done from time to time. If you think about the last three years we have demerged our pharmaceutical business and created a new company called Indivior. We have divested our footwear business and given that out. There is a lot of rationalisation that has taken place in the tail brands. So, that has been an important part of our focus on driving the core business in health, hygiene and home.
Q: What more can we expect in terms of divesting or getting out of brands that no longer fit into the company's current profile and the effort to continue to boost your healthcare business?
A: About three years ago, 80 percent of our business was health, hygiene and home and 20 percent was of the rest and today it is only 8 percent. So, you are talking about a pie which has shrunk from 20 percent to 8 percent. So, divestment focus has taken place and we will continue to do that. Our larger opportunities are not just to think about divestments and tail brands rationalisation, I think it is to drive our focus on consumer health, on hygiene.
Just to give you a very simple story here – I came off the plane, went straight to Dakshinpuri in South Delhi. Dakshinpuri in South Delhi is like one of the many suburban places we have in Delhi but also in many parts of India. When you think about so many, there were about 20,000 people who live in a very small place – five people in one small room of 10 feet by 10 feet, open drains, water condition is not very hygienic, toilets not very clean and the fact of the matter is you have got hygiene issues there. With hygiene issues you have got health issues.
I am very proud of many things about India as an Indian, as somebody who has been born and brought up here and owe everything to India but the one thing I am not proud of is the fact that in this country you have something like a 120,000 deaths taking place from diarrhea alone. When you add it all together, in the world we live in today there is one child dying of diarrhea every minute. By the time you and I finish this conversation 15 of these young children under the age of five would have died of diarrhea.
It is highly preventable; it is something we have to avoid. RB today is very proud to announce a program of 'Stop Diarrhea'. This is where we are investing over a number of years, over USD 30 million. We want to make sure that we not only invest this money but we have actually committed R&D resources, our people to bring change and to take care of diarrhea.
So, the larger opportunity in our company is not just to think about tail brands divestment, it is about to bring health, hygiene in markets that we operate in because that is good for people, that is good for society and that is good for the economy. There is so much economic loss that takes place because of bad health and that is good for my company.
Q: Any change expected from a corporate point of view because India so far has been the regional headquarters for South East Asia covering about 12 nations including Singapore, Thailand and Malaysia, will that stay, are there any changes expected on that front?
A: There will be, I think India will revert to its very important position as a regional hub for South Asia. However, the ASEAN headquarters which is markets like Singapore, Indonesia, etc will revert to Singapore through the ASEAN regional headquarters.
Q: Any reason for why you are doing this at this point in time given the fact that you anticipate strong growth in India and you anticipate India to be one of your key drivers not just from a sales point of view but also from an innovation point of view?
A: I think there is a very clear reason. We want to give India a very special place in our company's hierarchy if you want to call it like that. In the past India was reporting into ASEAN which was reporting into our developing markets headquarters. However, now we have brought India straight line into reporting into developing markets hedquarters. So, India has gone up, not gone down in the hierarchy if you want to measure it like that. India is, has been and will be a very important force of growth for RB.