Why Sanjiv Goenka Doesn’t Want to be in the Discounting Game

For Kolkata-based Sanjiv Goenka, Chairman of the RP-Sanjiv Goenka Group, a business should throw up either cash flows or valuations to justify it being part of one’s portfolio. In an interview with Business Today’s Global Business Editor Udayan Mukherjee, he decodes what has worked for his businesses. Edited excerpts:

Q: Sanjiv, your group’s interests are so diverse—from old-age businesses like power, energy, carbon black, extending to a suite of new generation enterprises like FMCG, retail, entertainment, music and IT. How do you keep a handle on such disparate businesses without getting torn in too many directions?

A: Three points I would like to make, Udayan: one, all the businesses have critical mass and they lead in terms of operational efficiencies in the industries that they operate in. So, because of their efficiencies, each one of them has earned the right to grow. Two, we have very strong, and very capable management teams with each of the companies who pretty much run the day-to-day businesses on their own so they come to me by exception. Three, we have a very robust system of reporting so we have reviews which happen very frequently and the reviews are broken into two parts—one is the operations review and one is the review of the new initiatives. So if you know how to focus, you actually land up with time on your hands.

Q: You know parents like to say that all their children are equal but life teaches us that’s not exactly true. So, among all these children of yours, these businesses, are there some which are closer to your heart than others?

A: Not really, none. At the end of the day, you may enjoy some more and you may enjoy some less, but that doesn’t mean anything as long as the business throws up either cash flows or valuations such that it makes sense to have it in your portfolio. In business, one has to be dispassionate in evaluation.

Q: That’s an interesting line so let me pick up on that—cash flow or valuations. The one which has been the serious wealth creator in your fold is the music business of Saregama. It always had a wealth of assets and the library was second to none, but it’s only in the last two or three years that you really started realising the value embedded in it. Do you think this is the cusp of the monetisation wave and as streaming becomes more and more powerful you will be able to unlock true value for this business in a way which you couldn’t have done 5-7 years ago?

A: Absolutely. I think Saregama has completely re-invented itself in terms of the approach, in terms of being completely with it—in terms of technology, in terms of developments, in terms of leading from the front, in terms of getting back to the acquisition of repertoire. Carvaan was one of the biggest technological marvels where you actually have a digital product, presented and made simple enough and accessible for an older-generation audience. So, we felt it should not be intimidating for people over 45. It should be simple to use and yet digitally and technologically savvy. It’s this kind of thought process, this kind of innovation that’s driving the company. So, of course, streaming helps enormously but I think it’s a series of things, not a one off.

Q: It’s true that Saregama is more than just Carvaan. The kind of licensing deals you did with Spotify a while back or your foray into the OTT spectrum with medium- and low-budget movies, it seems like Saregama is positioning itself as a larger entertainment company rather than just a Carvaan-focussed direct music company.

A: Yes, we are content providers and we are entertainment providers. Music is one element; we had many more plans which got put on hold because of Covid-19. But, hopefully, they will now be put into action. I can talk about certain things, and certain things it’s a little premature to talk about; but what I will say is that we are now going very strong in regional music. We have become No. 1 in Tamil music, we’ve made an entry into Telugu music, we’ve become No. 1 in Bhojpuri music. We are almost No. 1 in Gujarati music. In Hindi music, we have Sanjay Leela Bhansali now back with us, we have Karan Johar back with us. We have Akshay Kumar back with us; so we have some of the biggest names back with us and that’s not because they like the look of my face or my people. It’s because they’re confident that Saregama can deliver the best result to them.

Q: You have created wealth with Saregama but your retail business Spencer’s has not seen that kind of success. You did an interesting acquisition of Nature’s Basket from Godrej but if you look at the market value, Spencer’s is still a fledgeling compared to the DMarts of the world and how fast they have grown in the last 10 years. What are your plans for this business?

A: Well, it is true that Spencer’s has not grown at the pace others like DMart have grown, but we’ve taken a policy that we will not go for debt. Because we’ve not taken debt, we’ve remained small but we definitely want to grow now. Lots of initiatives are afoot at Spencer’s. Out-of-store sales—call it digital, call it delivery, or call it on phone—that format is something we have been focussed on. Apparel, everyday wear, loungewear, relaxed wear—that is another area of focus as it is high margin. Nature’s Basket was also in keeping with our philosophy of value-added retail. We don’t want to be in the “Sab se sasta [cheaper than the rest]” game because there’s no end to that. There’s no end to discounting. Nature’s Basket was a differentiated retailer aimed at the higher end of the market so that fitted in with our philosophy. And quite honestly, without meaning to sound condescending, we didn’t want to become another Future Group.

So, yes you can say we have been too cautious and in hindsight, we could have been more aggressive but that’s something we need to address now and we will do that.

Q: It’s interesting you say this Sanjiv because you’re getting into another pond which requires deep pockets, where you are up against some of the biggest players in the country—the FMCG business, whether it is foods with Too Yumm! or your hair care and skincare products. ITC has been trying to create this FMCG enterprise, with varying degrees of success, for a few years now and you know it requires a lot of financial muscle and staying power. Given the philosophy of not extending yourself on the balance sheet front, are you sure you’re up for this game?

A: If I wasn’t confident, I wouldn’t have entered it and at the end of the day it’s only time that’s going to prove whether I’m right or not. Whatever I may say may sound not so convincing but if I have put my bets on this, I’ve done it with a conviction that we will succeed. Too Yumm! in a very short period has created a market for healthy western snacks. It’s a market which did not exist in India. It’s become the preferred brand for healthy snacking now. ‘Naturally’—which is our brand for personal care—has just been launched in two cities so far, Bengaluru and NCR. No advertising, but [it has seen] an incredible amount of repeat business already. It’s overwhelming. [It’s] early days yet and [we have] a long way to go but the beginnings are very good. Yes, we know we are going to lose money. When you look at a power plant, you look at Rs 5,000-10,000 crore of investment which involves Rs 3,000 -4,000 crore of equity... Rs 3,000-4,000 crore is all I need to fund 10 years of losses in FMCG. It’s not that big a deal in the context of annual cash flows of Rs 5,500 crore if you’re looking at funding Rs 300-400 crore of losses.

Q: Is this the same thought process which drove you to the IPL Lucknow franchise?

A: You know Udayan, I had a very different way of looking at the IPL. I do believe this is a huge value creation opportunity because in 5-7 years, I expect these franchises to be valued at $2 billion at least. Also, the economics have changed for the better since the time I won the bid and today it appears the broadcast rights will go at significantly higher sums than was planned or anticipated in those days. So, as it stands, my investment in year one will be Rs 500 crore, from year two to year six it will be Rs 250 crore a year, and thereafter there is no further investment. So less than Rs 2,000 crore for an IPL franchise. Chennai Super Kings is already valued at Rs 7,600 crore; I think the math is there for anyone to see.

Q: So, it was a hard business decision right, Sanjiv, because you know with these things, there is such a fine line between it being a trophy that you’re acquiring for other reasons, or a tangible business opportunity.

A: You know, you look at trophies and vanity investments when you’re 25 and 30. When you’re 60, only fools look at vanity for investments. I certainly don’t think I’m in that category.

Q: I want to spend a minute on the power business. Do you ever worry that you are stuck in a business where the environmental winds are blowing too heavily against you?

A: I’d stopped investing in thermal power generation five years ago and I’m on record at our AGM five years ago saying that we will not invest in thermal power generation capacity. What we have already started or what we are invested in obviously remains, but we will not invest a rupee more in any additional capacity.... I do believe for power the way to go is distribution and there’ll be enough power available for the taking so I would rather not invest in generation but in distribution, which is where we are growing; and we’ve taken over three cities in Rajasthan and Malegaon in Maharashtra. We won the bid for Chandigarh and there will be many more.

Q: Take us back in time to that day when your father [industrialist Rama Prasad Goenka] told you that the RPG Group was being carved up between you and Harsh. You were much younger then and there was no rift between you and your brother, so did it come as a shock? How did you take it?

A: It was completely unexpected, like a bolt from the blue. So it was February 26, 2010, four days before his 80th birthday and he said this is what I’ve decided to do. Over the years I had realised and learnt that there were many things you could mould my father’s opinion on, but in some matters you just couldn’t make him change his thinking. So that was it. For 30 years Harsh and I worked together, speaking 10 times in a day, on anything and everything. So, it took some time to get mentally used to the fact that we’d be working independently, but that’s the way it is. Harsh and I have very good relations; we still speak regularly, we have long conversations and share many things and we feel good for each other when the other does well. That to my mind is the best thing.

Q: And now Harsh is in Mumbai but you live in Kolkata and you’ve never shifted your base. You’ve got businesses all over the place, but Kolkata remains steadfastly your base. Is there some special mooring or anchoring with that city?

A: Oh yes, Kolkata is home for me. It’s where I’ve been born and brought up; it’s a city that has given me enormous love, enormous respect and if I had a choice, this would be a city I would continue to live in forever. The same holds true for my son, and that’s his choice, by choice.

Q: People in Kolkata would be calling you an adopted Bengali bhadralok (gentleman), would they not by now?

A: Ekey barey. Absolutely!