Sanjiv Goenka, the younger son of Rama Prasad Goenka, has reinvented himself, and with dramatic results. Two years after the split of the Rs 19,000-crore RPG empire, the Ebitda (earnings before interest, taxes, depreciation, and amortisation), or operational profitability, of his portfolio of companies has jumped 45 per cent amid one of the most challenging economic environments in recent times.
How well has Goenka’s empire fared under its new identity? In the two years before the split in August 2010, CESC, the group’s power company, generated net sales of Rs 4,327 crore in FY10, up from Rs 4,170 crore the year before. However, after the split, revenues of the company jumped from Rs 5,070 crore to Rs 5,892 crore, a significant improvement over the same timeframe. Similarly, its other flagship company, Phillips Carbon Black, also registered a big jump in topsline growth—from Rs 1,695 crore to Rs 2,186 crore after the split versus a jump from Rs 1,165 crore to just Rs 1,235 before it.
Nevertheless, a host of changes is currently underway. Companies within the group are being overhauled, with a rude focus on bottom lines that can, at times, even warrant a change in management. “My people are saying I have become a lot more demanding, which I have. I have become more assertive… even aggressive,” says a self-assured Goenka.
The split, considered one of the most amicable separations in India Inc, got a leg-up last year, with Sanjiv Goenka carving out a corporate identity — the RP-Sanjiv Goenka Group — independent of elder brother Harsh’s RPG, a brand that traces its history to 1820. At the time of separation, revenues of the RP-Sanjiv Goenka Group were at Rs 8,000 crore, and, last year, stood at Rs 10,200 crore. This year, they are on their way to Rs 12,500 crore.(SANJIV GOENKA'S SPRAWL)
“The Ebitda improvement was part of an overall change in the philosophy of the group and the way it is run. There is an emphasis on operations and accountability. Clearly, growth is a way of life, whether organic or inorganic, but with a sharp focus on bottom lines. So, there will be respect for age, but not for non-performance,” says Goenka, somewhat bluntly.
The going has been good for Goenka so far. Last month, power utility CESC saved Kolkata from darkness when 600 million Indians across North and East were affected by one of the worst power outages in recent times. Goenka can’t help but admits that it was a major boost. “It’s not arbitrary. We entered into a tie-up with Singapore Power in 2009. See how it’s holding us in good stead? Our people are being trained there,” Goenka said.
But, there is much more ground to be covered and McKinsey has been roped in to draft a road map for the RP-Sanjiv Goenka group. The consultant’s scope is wide-ranging: From operational excellence to capital deployment and a review of companies.
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“In February or March, McKinsey was appointed to study the group, company-wise. By December, we will be able to talk about the growth plans,” says Goenka, who now has his companies in a compact dossier, till the very last details.
Much of the targets announced last year are on track with projects of Rs 10,000 crore under implementation. “We had talked about Rs 30,000-crore investment plans in five years. Within one year, we have Rs 10,000 crore worth projects off the ground, financially closed, civil works having started and construction going on, and, with not too much noise. This takes our gross asset base from Rs 14,500 crore to Rs 25,000 crore now.”
CESC accounts for the bulk of these projects, but the 113-year-old company is still a minnow. The company, however, is looking to expand its capacity to 4,500 Mw by financial year 2014, from its existing capacity of 1,225 Mw.
Goenka has a ready answer for why CESC has lagged fledgling peers (relatively speaking) in its area. “Look at the UMPP (ultra-mega power plants) space. For us, it will be an aggressive, but calibrated, call. We don’t want indiscriminate growth,” he explained.
That probably explains why Spencer’s carried out an exercise of rationalisation of stores over a two-year period. Or, why the group pulled out of a high-profile bid for Evonik in the carbon black space. “We looked at Evonik, but the price went much beyond what we hoped, and it did not work out,” Goenka said. But, there is still a lot of appetite for acquisitions in the carbon black, media and power areas.
Till such a time, organic growth is being pursued. McKinsey is trying to figure out what the options are before CESC, other than thermal. “Will fuel be available? What if it is not available — what then would we do with our growth plans? Instead of taking a backseat, can we redeploy that capital elsewhere? That is what McKinsey is looking into,” Goenka says.
Carbon black capacity is being almost doubled. On the retail front, Spencer’s has broken even at the store level, but company-level break-even is still four quarters away for Goenka. “Spencer’s has been a loss-making venture since it became CESC’s subsidiary in FY08 and will take two to three years to break even. However, on a positive note, the retail business has turned ebitda-positive on the store level since Q1FY11. For FY12, per-sq-ft sales of Spencer’s have increased to Rs 1,060 per month (9.7 per cent higher compared to FY11). The company’s per-month ebitda stands at Rs 43/sq ft in Q1FY13,” said V Srinivasan, research analyst, Angel Broking.
Srinivasan believes that there is no evident change in the strategy of CESC since the new group has been carved out. “With McKinsey on the job, we may see some changes soon,” he adds.
On the other hand, music company Saregama is being revamped and is awaiting its new chief executive officer. “We have decided, in Saregama, we will not do things that have the potential for making losses. We will focus on two things—first, music, which will be largely digital, and television software,” Goenka said, making it clear that the company was exiting film production.
Formerly the Gramophone Company of India, Saregama has a repertoire across genres and languages, including the top recording artistes of the past 100 years and some of the greatest names in music.
Goenka is also utilising non-performing assets to make those revenue-generative. A case in point is, CESC Properties, which is setting up a hybrid mall that would have a mix of luxury, medium-end luxury and everyday brands. The plot is owned by CESC.
Could some such surprise be in store for tea and rubber company, Harrisons Malaylam, which is being split into two, according to the separation arrangement? After all, Sanjiv Goenka’s share would be 9,000 hectares across the tea and rubber estates. That, too, is part of the task handed to McKinsey.
Goenka signs off by saying: “Lots of things are happening, still there are works in progress.”