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‘Nice to Have Banks Running after You’: Harsh Goenka Shares Success Mantras

‘Nice to Have Banks Running after You’: Harsh Goenka Shares Success Mantras

Harsh Goenka, Chairman of RPG Enterprises, shares his views on diversification, M&As, happiness and how companies can deal with uncertainty

Harsh Goenka, Chairman of RPG Enterprises Harsh Goenka, Chairman of RPG Enterprises

With companies such as KEC, CEAT, Zensar Technologies and RPG Life Sciences in its fold, the Harsh Goenka-led RPG group had a cumulative turnover of over Rs 30,000 crore in FY22. One of the oldest entities in the country and known to have made some daring buyouts, the group’s focus now is on technology, digital and getting ready for an unpredictable but fascinating future. In an interview, with Business Today’s Krishna Gopalan, the 64-year-old Chairman of RPG Enterprises highlights how each of his businesses is at an interesting stage and what is being done to bolster revenue and profitability in a post-pandemic world. Edited excerpts:

Q: How have you adapted the group’s businesses in a changing environment? In that backdrop, what is being done to make them nimble-footed?

A: At the outset, we look at ourselves as a global group with a footprint in over 100 countries. Today, 45 per cent of our revenue comes from international operations. I would like to bring up an example to elaborate on the point of being nimble-footed. An issue we had, at one point, was that we could not get the best talent to run our R&D function. There were a few [potential candidates from other countries] who changed their minds after seeing the state of infrastructure in India. We lost a precious two years in the process and it was time to take a big decision and that was to move the business elsewhere. Today, our R&D headquarters are in Frankfurt.

Take the case of Zensar [Technologies], where most of our senior staff is based out of the US. Our competitors are not just Indian companies; we participate in global tenders for our products and services. To do that well, we must equip ourselves with the right and [the] best talent. A lot more time is now spent on getting the talent from top management schools within India.

In my opinion, the way we are structured makes us a lot flatter than most other organisations. The advantage is that it helps significantly in the ease of decision making. At the core, it is critical for us to understand why we exist as a business group. A lot of soul searching was done to answer the question. It finally came down to just our own happiness. Frankly, we were quite surprised that nobody had taken on the platform of happiness. Our core promise to our stakeholders, employees and vendors, is to create a win-win situation, and how to create happiness as our primary offering. This is a never-ending journey, but one that we had to embark on. Happiness, I would say, is what makes us fairly unique.

One of the big reasons for us to be nimble-footed is the extent of digitalisation we have undertaken. This is evident across our factories. Within this, there is automation, robotics, ERP systems, with the task on hand being to get a flow of real-time information. In the digital piece, I personally think we are ahead of the pack. AI and big data are used for better decision-making. For instance, a lot of raw materials bought earlier were on the basis of gut feel. Now, we use AI. IoT and predictive analysis are also a big part of our story in manufacturing. Of course, there is also innovation and, for that, we have ushered in a culture where people are encouraged to make mistakes.

Q: Your portfolio has both B2B and B2C businesses. How do you strike the right balance between the two?

A: We do have some B2C businesses but in the traditional sense, we are not in the consumer-led business. Yes, there is CEAT, where we interface with customers but that is not an FMCG business. It is more [of] a consumer durables business. CEAT is really a B2B2C company. There is blend but with a tilt [towards B2B].

Q: What is your approach to debt? How do you maintain a robust balance sheet?

A: A good thing is that we have managed to keep our debt levels rather contained. In fact, we often are sitting on cash and choose not to borrow from banks. That is a nice situation to be in when you have banks running after you, rather than the other way around (laughs). At a group level, our revenue growth has been reasonable and so has our PAT [profit after tax]. Our investments over the last three to four years have not been small; [they were] at around Rs 7,000 crore. One must understand that this period was rather challenging. We saw the effects of demonetisation and GST, the NBFC crisis and, of course, the pandemic. In every sense, one is in the midst of the VUCA phase.

We have strong balance sheets across our group companies and our net debt to equity [ratio] is at a very healthy 0.2. The focus is not on diversifying unnecessarily. Rather, we want our businesses to stick to the core and look for good and clear opportunities in adjacent areas. Plus, what we have managed to do very effectively is create synergies between group companies. This has been made possible through the establishment of centres of excellence—be it in manufacturing, safety, digital, or HR, to mention a few. All of them move very well through the group apart from experts who speak to us on best practices.

Harsh Goenka, Chairman of RPG Enterprises

Q: How can moving to adjacent businesses be a strategic advantage?

A: Take the example of our power transmission and distribution business. That took us to an opportunity in railways but specifically in railway EPC [engineering, procurement and construction]. It was then followed by civil EPC and later a play in smart infrastructure EPC. A recent foray has been oil EPC but at the core of all this is the EPC business. We realise our strength is, take something from Point A and move that to Point B.

Moving to the issue of diversification within the family, the group has RPG Ventures. Here, we look at two lines of businesses. One is about being synergistic with what we do. An example is the investment we made in a company called Tyresnmore, which does tyre fitments in your home.

We have also made investments in a fleet delivery system. There are other examples outside our group’s businesses such as putting in money in businesses such as in a company that sells plants, a mattress player, one in cybersecurity and in children’s clothing. Many of them are B2C but we don’t run any of them.

Q: The pandemic has taken a huge toll on businesses across the board. How did you cope with that and to what extent are you seeing things starting to look up?

A: The group went through various phases. The first was a focus on one’s own safety, followed by the safety of the organisation. Then, it was about assessing the impact and the one we are in the midst of is how to make it business as usual.

It was believed by most business groups that the pandemic would be out of our lives by July 2020. I don’t think anyone expected it to be such a difficult and interesting period. It gave us lessons on adaptability, flexibility, grit, vulnerability and compassion above anything else.

If the first few months were a washout, what we saw during September-December 2020 was an unprecedented boom. However, starting October 2021, demand was soft or in some cases, negative. This was accompanied by an increase in raw material prices leading to a significant pressure on margins. It started to get better early this year. The fact is we have to get used to unpredictability. That itself is a great learning.

Q: Your group has businesses that are traditional in nature as well as those that are contemporary. How do you get them together?

A: We basically look at the mega trends and orient our businesses towards that. Post the pandemic, one of the important levers of success has been ESG. Nobody ever talked about it in the pre-pandemic phase. I remember speaking about this to a businessperson and he said, “Kya hota hai ESG? [What is ESG?]” And today, it is at the forefront of every board discussion. It shows up in any survey, where climate [change] is a bigger hazard than Covid-19.

The other trend I see is how countries have become nationalistic. People have become protectionists and the phenomenon of geopolitical unrest has created a lot of challenges, especially when one looks at the extent to which supply chains have been affected. The disruption from China has not been easy but it also means I have to look at each issue and market differently. Today, I will need to ask myself whether I need to do business with a certain country measured against what India’s position with that country will be in the future. Nobody obviously will have an answer to all this.

India is the biggest player in Afghanistan. There is no way we could have expected the Taliban to come in. To put it simply, global uncertainties will lead to a lot of business models changing.

There are several other trends emerging. Business travel will come down and leisure travel will increase. There is no need for a face-to-face meeting in companies. At the same time, we must get it right on organisational culture. That piece is critical and not easy to create.

Q: What are the growth and revenue triggers for some of your key businesses?

A: Many opportunities will take off in a growing economy. To reiterate, we have kept ourselves lean from a debt standpoint. That is one part of the story but there are other components to growth and revenue.

For instance, technology is indispensable today. We use it extensively in our agricultural business, Harrisons Malayalam, with the help of drones. In CEAT, we will soon have a smart tyre and a puncture-safe tyre. Fleet management is also an area that uses digital tools with AI. The common thread is digital and we have an IT business, where there is a big growth momentum. Today, a lot of contracts are coming to us only around the theme of digitalisation. It is an indication of how things will evolve over time.

Speaking of other businesses, the civil and railway segments have registered healthy growth. The stated objective is to be the second largest after L&T. At CEAT, we are trying to produce a sustainable product, broadening our range, increasing online sales, creating a phygital distribution and becoming more relevant to the US and UK markets. In the passenger range, there will be a lot of business coming from the US, UK and Brazil, plus increasing our presence in OTR (off the road) for international markets.

At KEC, we will look at additional high growth in our existing segments. There is a lot happening in water and solar, and the government is emphasising on smart infrastructure. We see an opportunity in RPG Life Sciences in the domestic therapy business accompanied by a thrust on international markets. In Zensar, it is all about digital and engineering-led technology.

Q: Your group was the forerunner in M&As. How has that approach changed?

A: Acquisitions have been done judiciously. I remember how aggressive we were in the 1980s and 1990s. But now, it is about looking at niche areas, competencies and markets, and deciding on where we want to grow. We have a successful JV in Sri Lanka for our tyre business. Going forward, our growth will be a healthy and robust mix of organic and inorganic. We have made some interesting acquisitions in businesses such as oil and gas and data intelligence.