RP-Sanjiv Goenka Group was carved out of RPG Enterprises in 2011 with an asset base of ₹14,000 crore and a turnover of ₹9,000 crore. Five years later, turnover has doubled to ₹18,000 crore, and the asset base has more than doubled to ₹32,000 crore. In an interview with BusinessLine, Chairman Sanjiv Goenka outlined the group’s changing orientation, problem areas to be plugged and future growth drivers. Excerpts:
In what way is RP-Sanjiv Goenka Group distinct from the RPG Enterprises of the past?
We are trying to change the culture of the group. The values, pedigree remain the same. But, ethos is changing from turnover orientation to asset- and bottom-line-relevant orientation. I would like to be known for owning and running companies that are extremely efficient. In some companies, we have got there; in some others, the process has begun.
The new mantra for our companies is operations; for people, it performance. It’s a huge departure from the past. For years, people have not been performing.
Do you have a time frame to complete this process?
Time frame is something you may not necessarily adhere to. Sometimes, we may miss that, but we have come a long way.
Today, CESC (Calcutta Electric Supply Corporation, the group’s flagship company) is regarded as an extremely efficient utility. Spencer’s is one of the most efficient retailers.
CESC and its wholly owned subsidiary Firstsource are prime cash churners of the group...
Spencer’s, now, is in its fourth consecutive month of profitability — at a company EBITDA level. We have to jump up the scale in terms of profits.
Spencer’s, which is wholly owned by CESC, posted a ₹142-crore loss last fiscal. Is it taking more time than you expected to turn the corner?
One can do only what is within one’s control. For example, you can’t handle the environment and pessimism in the customer’s mood. But when we began, we had ₹700 per sq ft of sales, with the market leader at ₹1,100 per sq ft. Today, we lead the sector with ₹1,600 per sq foot of sales, with the second player having around ₹1,300 per sq ft.
Spencer’s is getting out of losses. It will get reflected in 2017-18.
Is Spencer’s moving to larger format stores?
Completely. The process has begun. We’ll no longer do small-format stores like dailies and chutka supers.
Though wafer thin, the margin of Phillips Carbon Black has improved. Has it undergone any restructuring? What is the outlook?
We expect the profits to increase because efficiencies and volumes will increase. We have a robust team in place now. Every functional head has been changed over the past two years. We have taken measures to increase efficiency. Many have borne fruit; many are yet to bear fruit. We have still not completed the journey.
You jointly hold the plantation business with elder brother Harsh (RPG). Has it been split informally?
Yes. Certain gardens belong to him and certain to me, within the family understanding.
After cricket (IPL) and football (ISL), what’s next in sports for you?
We are leveraging the group identity through sports. So far, we have not been getting any financial returns, but have received significant branding and brand recall. Yes, we will enter more sports; I don’t know which all. I can assure you that I will not buy for vanity. I will buy only when it makes sense. So far, it has been working out for me.
Au Bon Pain café lost ₹21 crore last year. What are the plans ahead?
We had a horrible management team. We have changed that. You will see 30 new products being introduced very soon.
CESC has been an engine behind the group’s diversification and expansion. However, except IT and Quest Properties, many, including power generation outfit Dhariwal Infrastructure (₹589 crore) are in losses. How do you plan to increase shareholders’ value in CESC?
Dhariwal is getting out of losses. With fresh fuel supply and power-purchase agreements being signed, and the grid connectivity granted, Dhariwal should be out of the woods starting this fiscal end. From 2017-18, you will see substantial profitability of the consolidated entity.
After setbacks in Bihar and Jharkhand, you recently entered Rajasthan for electricity distribution in two cities. Will you bid for more franchises?
Yes, we will. We have now got a list of States and cities to focus on. We have mapped the whole country — what are the additional revenue areas in a distribution area and so on. So we now know what to do. Rasjasthan is clearly a focus. But there are other States as well.
At a time when electricity is trading in open market at ₹2.5 a unit, why is a CESC consumer paying ₹7?
What is available in the grid (open market) is not continuous power. It’s not invested for you. Investments are made for returns.
If you want security of power availability, you have to pay for that. Else, you have to go through the ups and downs of grid connectivity and supply.
Is it more costly to shut down CESC plants and buy power from the open market?
Yes, it is. What you have already sunk is your fixed cost. So what you have to compare is the variable costs of the power you generate with the power you buy. Variable cost power is much cheaper than exchange power.
You acquired coal mines on aggressive negative biding (promising to pay the government ₹470 a tonne on zero operation cost). Does captive mining make any economic sense?
We did it because there was a shortage of coal then. And we felt that if we didn’t get the coal, consumers would suffer.
It is (now) a disallowance on the company.
Firstsource is making money, but its US operations are a drag. Any comments?
Overall, FSL (Firstsorce Solutions Limited) is doing well. There has been a significant rise in margins since its acquisition. It has also decided to diversify in other areas of the ITeS (Information Technology enabled Services) sector.
The US operations are beginning to do better; not all parts, but certain areas are doing well.
Sky Media recently went through a process of consolidation of vendors. And they have signed an LoI (letter of intent) with us for 10 years.
So we will be their single-preferred vendor.