The Godrej Group has been a prominent name in the landscape of Indian businesses for over a century. Having survived for this long, and even flourished in many sectors, Godrej is a trove of wisdom when it comes to the Indian business world. As the world deals with a global economic slowdown, and with the Union Budget 2023-24 only weeks away, Indian business conglomerates like Godrej Industries are pulling up their sleeves to navigate the upcoming year.
In this exclusive interaction with Outlook Business, Nadir Godrej, Managing Director and Chairperson of Godrej Industries Ltd. and Chairman of Godrej Agrovet, shares his insights about Godrej’s recent performances and upcoming challenges. From the ESG revolution and agriculture practices, to the chemical industry and macro-economic outlook, Godrej’s cognisance on all matters business is reflective of the century-old conglomerate’s expertise. Edited excerpts:
There are talks of recession abroad and global inflation levels have been high since the onset of the Russia-Ukraine war. Many analysts believe that we are advancing towards a global downturn. So, what does the way forward look like?
Yeah, the Russia-Ukraine war led to a global commodity boom but most of the prices have normalised now. China’s inexplicable zero-Covid policy has hurt its economy, so, it will take time to recover. However, this is an opportunity for some Indian industries, especially the chemical industry.
India’s Consumer Price Index (CPI) basket has a high component of food and fuel prices, most of which are global commodities. As commodity prices are now lower than the previous year’s, Indian inflation is likely to fall within the Reserve Bank of India (RBI’s) band. In fact, I read it in the newspaper that it fell to 5.9 per cent. We might see have to see more than one rate increase but even that is not warranted.
How do you see the constant high inflation in India impacting the business of Godrej Industries?
I disagree that it's constant high inflation. India's inflation numbers have been very good for a long time. It is true that because of the Ukraine-Russia war, we had a spike. But even during that spike, our inflation was lower than that in USA. The chemical industry for Godrej Industries has performed much better than it did in the past.
Interestingly, the challenges faced by China and Europe have actually benefited this industry. Godrej Consumer Products was affected when commodity prices were high but with the recent trends, profitability is getting back to normal. Real estate was not impacted. During the commodity boom, the palm oil business also benefited. There is an opportunity to provide affordable products and our companies prepared for this.
Everyone's been talking about the great ESG revolution. Previously, you have said that ESG must not be seen as ‘lost profits’. How is Godrej Industries planning to lead that change?
ESG is not just a cost, it shouldn’t be seen as profits lost. (smiles) We wanted to apply this philosophy to our employees. So, we started a new program called Good & Green which sought to achieve carbon, water and solid waste neutrality. We didn’t entirely achieve our neutrality goals in 10 years but we should achieve Scope 1 and 2 by 2025 and Scope 3 by 2035.
In India, fossil fuel prices and electricity rates are high. So, we think that investing in energy savings is good as the returns are phenomenal. Since India has a severe water problem, we also do watershed developments in drought-prone areas of Madhya Pradesh, Maharashtra, Karnataka and Telangana. With the help of these projects, we are now six times water positive. So, I would say that sustainability is not a pain, it is a gain. (smiles)
IPCC says that Africa is the most vulnerable region in many ways. It has also been pretty tricky for Godrej Consumer Products. So, what is your broad outlook on the African market?
Africa's economy has been adversely affected by the pandemic, the Ukraine war and the predatory infrastructure investment by China. Now, Godrej Consumer Products has somewhat suffered from having several different acquisitions that are not integrated. So, a process is underway, and we expect the performance throughout Africa to improve soon.
Even if the African economies don't improve, we will do better there. There are also foreign exchange challenges in Africa, but as a global company, we can better face those than African companies. Hence, we are quite optimistic about Africa despite the present challenges.
The profitability of Godrej Agrovet was impacted due to rising raw material cost and the crash in domestic price of soyabean meal. What is your big picture understanding on this now?
Yes, the crash in soya meal prices was not expected because the government had a policy of not importing soya meal. And even though we had good contacts with the government, this came as a total surprise. So, we were stuck with high priced soya meal stocks when the imports allowed. This led to us having inventory write offs as well, but now, the situation has normalised and the animal feed businesses is once again doing well.
In the agriculture sector, what are the new innovations and steps taken by Godrej Agrovet to improve farmers' income & productivity?
For animal feed, we have the Nadir Godrej Centre for Animal Research and Development in Nashik, Maharashtra. In this domain, we also have many innovations like the ‘maxi-milk breed.’ Even in feed, we have many innovations and the current job in the animal feed industry is to optimise the various reactors present in cows.
One of the most brilliant one is the cow’s rumen, which is a bioreactor. We have developed various products that bypass the rumen and the entire process leads to minimal wastage and maximum productivity. Generally, animal husbandry is considered ecologically unsound. However, our idea is to fine tune animal husbandry in order to make it more cost effective and have a lower carbon footprint.
Technology is becoming an important aspect in agriculture. How is technology leveraged in Godrej Agrovet's business?
Technology will play a big role as the major problem in Indian agriculture is the small size of the farm holdings. Indian agriculture has scale, so we will now focus on connectivity. Towards this goal, we have developed a WhatsApp-based app called ‘Feed Expert,’ where we advise farmers on how to use the feed effectively, and other ways to improve their practices.
In the case of our palm oil farmers, we provide them inputs and also pick their produce. Often, we use geospatial technology so that we know what's happening. So, technology has a big role to play and I do see a bright future for India.
Last two years have been brilliant for the chemical industry. Do you expect a similar pattern in the near future?
At present, we see the good situation but challenges are coming up as some product prices are falling. Even though we expect good performance to continue, we are not sure if our profits will keep growing. We think they will stay steady.
This is partly because our monthly profits for this year are almost like our annual profits a few years ago. We can’t expect that to sustain but the general environment is good. We are planning to invest in more production of fatty alcohol and surfactants. We have also increased our R&D expenditure.
Government is considering PLI benefits for some chemicals. If that gets approved, will the company opt for taking this scheme?
It will depend on the chemicals they include. If agro-chemicals and oleo chemicals are included, we will definitely participate. But we have to wait and see what chemicals are included in the PLI scheme.
What are your expectations from the Union Budget 2023? Is there anything in particular that the government should focus on to curb inflation and reinvigorate growth?
As you know, I'm not too worried about inflation. So, I wouldn't even mind if the budget deficit rises, provided the spending improves growth. Hence, I would welcome any spend on useful infrastructure, even if it increases the budget deficit. Apart from this, as I just mentioned, any spends on human capital would also be welcomed, even though the payoff of those is in long term.
