‘Specialty retailing is a possibility’ -An Interview

CREDITED with providing a new dynamism to the LM Thapar Group of companies through drastic decisions, the young Gautam Thapar has come a long way after taking over at BILT, India’s major pulp and paper producer. In an interview with Masood Hussain, Thapar said he has no great mantra other than identify a business, start at a small level, gain experience and scale up.

After acquiring a major paper facility in Malaysia are there more acquisitions in the pipeline, especially in Indonesia where you source most of your pulp requirement from?

From the shareholders’ viewpoint, three things are vital in any acquisition: political stability of the place, policy in the particular sector and, the availability of local skilled workforce. Though both Indonesia and Malaysia inhabit the same island and the agro-climate, Malaysia is better placed. It meets all the three requirements and is very competitive, possibly because of a better forest policy. Unlike Malaysia, going to Indonesia involves major risks — the currency risk, inflation risk, and the political instability.

What is the future of India’s paper industry? It still relies heavily on imports of raw material!

The demand is growing by 10-15%. When the supermarket business grows, demand will grow even more, especially for packaging grades. With more allocation for education, writing and printing side demand is also on the increase. The thumb rule is that paper demand goes up with the economic activity. Besides, India is becoming a low-cost printing destination. On raw material side, if India’s is heavily dependent on imports, the fault is with the policy. In India land issues are very sensitive yet you could bring about change in afforestation and regeneration by opting for scientific ways. But it is not happening so the imports would continue.

Is the industry fully utilising the agricultural raw material and waste?

We use everything in India, both agricultural residue and waste paper. However, it is better to use agri-waste as fuel rather than use it as raw material for paper as it is neither segregated nor as clean as the processes demand in India. My yield from tree pulp is 48% as compared to waste paper that gives barely 28%.

A few years back BILT was on the brink of disaster. How you did you manage the turnaround?

At the end of the day any company must remain focused on its core business. BILT was paper, not newspaper or chemicals. I brought the focus back to paper. We did away with everything that did not make any sense. A company that would make Rs 200 crore profits in one year plummeted to Rs 83 crore another year. A three-year analysis said the problems were within and not in the market. Entire process — putting suppliers on right track, correcting the MIS took barely three months. At times I had to be harsh. It worked and within a year profits doubled. I believe there is no reward without taking a risk. And there is no such thing as a calculated risk. Have a vision; a strategy, a formulated thesis and then go and make it happen. I tell people there is no rocket science to management. You need to have the right people and give them the mandate. Focus, strategy and an accountable team — that is all.

Retail is emerging as a lucrative sector. Do you have any retail ambitions?

Our FMCG is on track, brands are being built and in future if it makes sense we may think of retail. Right now retail is real estate game not a skills game. We do not want to go supermarket way but specialty retailing is a possibility. We would like to build on the strengths of our existing network. In food processing we are becoming a sizable entity and we can grow with the supermarkets. This year we had Rs 500 crore sales, all of it overseas. That means India is still a virgin market for us. When Bharti and others come up we would talk to them as our ability to supply is much larger than smaller players. In fact, there could be opportunities in some smaller acquisitions to increase the size of our food processing capacity as purely a private label supplier.

BILT Power wants to do power plants in SEZs. What are your views on SEZs? What stops you from bidding for major power projects?

Some, not all SEZs would be successful. And we have to do business where there are serious players. We are looking at all state development corporations, which see SEZs as development and investment. The private players could be seeing these as real estate opportunity and tax heavens. In fact, some state-backed SEZs will come up quicker and faster than many private ones. From risk reward point of view smaller project is easy to do. You can achieve financial closure quickly and, evacuate the power quicker. Selling power from major projects with a couple of customers — some of whom are not good payers — is a problem. Ultimately, we will get to large projects but we want to go in stages. India is an evolving landscape, and for the next 50 years there is requirement for more power.

How would you maintain the edge and the dynamism the group has acquired of late?

The change in strategy that I have brought about is that we need to be compatible and take lessons from changes taking place worldwide. We know India, the landscape, our competitors, and market and we need to protect it. But protection does not come through investment alone; you need to have the cutting edge technology else you are bound to lose market to the better equipped. We adopted this strategy in Crompton & Greaves; we have done Rs 6,400 crore sales that could increase Rs 1,000 crore next year. We will also acquire more. And we would like to have service revenue as a major chunk of our solutions revenues.

Courtesy: EconomicTimes