Immediate 50bps rate cut is expected from RBI: Adi Godrej, Godrej Group

Adi Godrej, Chairman, Godrej Group, speaks about coronavirus and its impact on Indian and global economy, opportunities for Indian government, real estate sector and his plans to enter into housing finance business during a candid chat with Swati Khandelwal, Zee Business. 

Edited Excerpts:

Q: What is your view on coronavirus spread and what steps have been taken to curtail it at your group?

A: Its effect is decreasing in China and South Korea and things are improving there and there is a reduction in the number of cases in those countries. But, it is increasing in Western countries. I think two more months are required to bring it under control.

Q: You have witnessed many such virus outbreaks, so, tell us the ways to deal it for next two months and what companies should do as it is a global phenomenon?

A: It will depend on each company in terms of its raw materials, the situation of its finished products, its stock situation and where they are dealing among others. I think every company should review itself and take decisions accordingly.

Q: Hand Sanitizers are seeing a surge in demand. Has it had any impact on your business, if yes, then how it will impact your revenue and what are your plans to increase its production to meet the demand?

A: Its production has been increased amid increasing demand and I feel it will continue to increase.

Q: Can you quantify it?

A: No. I don't have those details with me.

Q: Consumption of eggs and chicken is impacted due to coronavirus fear. It had an impact on the poultry business. What do you have to say about this?

A: It is happening due to false rumours like coronavirus is increasing just due to the intake of non-vegetarian food and this has led to a reduction in the consumption of poultry items and I would like to inform people that it doesn't have any relation with coronavirus.

Q: Even prices of poultry has gone down due to the fall in demand. So, what is your future outlook on pricing and margin of poultry business as it is an important chunk of your overall business?

A: It is difficult to predict it as it will continue till rumours don't come to an end.

Q: Tell us about the steps that you are taking to nullify these rumours like any communication that has a widespread reach and talks on facts?

A: It is being communicated internally to the customers and distributors.

Q: Animal feed market is underpenetrated and highly unorganized. Do you see any opportunity in the segment?

A: Animal feed business can be increased and the government has a willingness to double the income of farmers and animal husbandry has the potential. End of rumours associated with coronavirus will increase the demand for animal husbandry. And, I feel that animal husbandry will be well-positioned in the market in the next two years.

Q: Coronavirus has had an impact on the supply chain in several businesses as well. Do you see an opportunity for India in it and do you think that India should leverage the opportunity and focus on localisation? Tell us about the steps that your group has taken to reduce its dependency on China? 

A: Our group dependency is low on China but I think that every company is looking forward to reducing their dependency. Apart from this, there are opportunities to replace China in context of export and other segments and that's why I think that Indian companies will also have a look on these opportunities and try to improve the situation.

Q: What are your expectations from the government to tackle this situation amid ongoing volatility in business mood, sentiment and we have already gone through a year of a slowdown last year?

A: The government should pay attention to everything and do whatever it can and it is doing the same. And, fortunately, coronavirus's prevalence in India is quite low when compared to other countries.

Q: The overall economy is going through pain and it has had an impact even on the Indian market as well as businesses. How concerned are you about the huge fall in the Indian stock markets and capital erosion of big companies? 

A: I am quite concerned about it and this has happened mainly due to coronavirus. Secondly, its outbreak can be is good for India at a time when there is crude oil surplus situation across the world and its prices are falling. It will keep oscillating but it is a good opportunity for India.

Q: Thus, crude oil is the only silver lining in this situation and its prices have tumbled below $40 per barrel and India can leverage on this opportunity. Do you think that the government should give a booster dose at this moment?

A: The government is doing whatsoever it can. I think it will benefit the government a lot and declined prices of crude can improve its position.

Q: Do you think that there is a need to take an aggressive stance as it was done in the US in the form of an aggressive rate cut? Do you think that the RBI should take a bold decision on the front of rate cuts?

A: Yes. I think inflation will go down in India and RBI should focus on rate cut and there should be an immediate rate cut.

Q: Can you suggest the level at which the rate cuts should be announced?

A: I think there should be an immediate cut of 50 basis points and it should be reviewed at a regular interval.

Q: Do you think that the steps taken by the government for the real estate sector are enough, if not, then what more is required? When do you see that there will be a turnaround in this sector?

A: The government has taken a few steps for the real estate sector but generally situation is not quite good in the residential real estate segment but it is good in the commercial real estate segment. Our company's performance has been a good one and I think that we will keep performing good in the segment in the future as well.

Q: What is the expected timeline by which there will be a turnaround in the sector?

A: Generally, it depends on the economy. If the economy is performing well then the real estate sector will also do good. Till the time there is no turnaround in the economy, problems will be faced by the real estate sectors as well.

Q: You are a consumer-led company. So, have you seen an increase in demand since the government has announced certain provisions for the sector?

A: The demand situation is bit low despite the steps have been taken because of the problem of coronavirus and deterioration of the global situation and global growth, which has been low. I believe that turnaround requires 2-3 more months. 

Q: What will be the international performance of your group in this fiscal (FY20) and what is your outlook for the next fiscal (FY21) for the same?

A: Global business is under pressure and I believe that the situation will remain tensed till when there is a total turnaround in coronavirus and global economy. 

Q: How has been the ratio of the revenue that comes from the international market and do you think that it will fall by the end of this year?

A: The percentage is almost similar because the pressure remains the same in India and other countries. 

Q: Do you see new markets or opportunities at this moment - when good businesses are available at good valuations - if yes, then name the markets that you would like to entre?

A: We will have a look at good opportunities but there should be an opportunity in the first place. 

Q: Any new market where you wish to entre, at this moment? 

A: No. 

Q: Throw some light on the group's vision at least when the year that is about to end has been very volatile. What is going to be the group's strategy for FY21 to keep the business strong amid volatility?

A: Will try to grow maximum and are studying the ways to increase our business in each segment. However, things will depend on the general situation and it will be good if there is a control on coronavirus and there is a rise in the global economy. 

Q: How India Inc. should react to the Yes Bank crisis and how it should work? Suggest the steps that the government should take to make sure that such a situation doesn't occur again?

A: It should pay attention to the capitalization of the banks and their performance, which should be good. I think that the string banks of India are performing well till date and I believe it may grow. 

 Q: What would have led to this crisis at Yes Bank?

A: General economic conditions and greed make people do wrong and find the wrong ways to expand their company/business which leads them to difficulty.

Q: What is the situation of liquidity in the market and do your group has any fundraising plan in the future? How is the liquidity of the banking sector?   

A: The liquidity of our company is good and the relationship of our company is well maintained with the banks. We enjoy all the facilities from the banks. We don't have any fundraising plan in the immediate future.

Q: What CapEx has been planned by your company? Do you have any plans for expansion or investment?

A: We will invest according to the requirement and it will be made in accordance to demand. But, we don't want to invest a lot until there is a turnaround in the economy. We don't need enough time to increase the capacity and it can be increased at the earliest when it is required. 

Q: How has been your company's contribution to defence and aerospace? How much growth is expected in these two sectors?

A: These two sectors are growing at a good speed and same is the case of our business. It is increasing in India and I believe that there will be a growth in our business as well. 

Q: You had plans to enter into a housing finance business. Do you think that it is the right time for the purpose and you are ready for it, if yes, what are 

your growth plans for it?

A: Yes, we do want to enter into this business. I believe that there will be a good demand in the segment and it can be a new business for us. Besides, our real estate business is doing good and that's why the housing finance business will grow in the same manner. 

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Q: What will be the timeline to begin this business?

A: The application has been given to RBI and is waiting for permission.

Q: Are you looking ahead for M&A opportunities in the segment or you have plans to grow organically? 

A: It will be organic.