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Can Gambhir streamline Godrej Consumer Products?

Source : BUSINESS_STANDARD
Last Updated: Mon, Jan 28, 2013 20:10 hrs
FMCG margins crimped, sales momentum to continue in June qtr

Vivek Gambhir, the CEO-designate of Godrej Consumer Products Ltd (GCPL), who takes over in June this year, appears to have a supremely tough task ahead of him. He has to match his company's stellar performance in the past four years or so - GCPL's revenues have more than tripled and its market capitalisation has quadrupled in that period. The company's investors - and its promoters - are no doubt primed to view this performance, that too in one of the bleakest macro environments in recent times, as a critical benchmark.

Many may think Gambhir, 43, has A Mahendran, GCPL's current managing director, to thank for the onerous task of matching these numbers. In reality, Gambhir has been the chief orchestrator of Godrej's growth and he has Nisa Godrej, 33 - Adi Godrej's younger daughter - to thank for hiring him. Godrej, who also spent time unraveling case studies at Harvard Business School, much like Gambhir, plucked this founding member of bluechip consulting outfit, Bain and Co, from his post as India head, and created a new post, chief strategic officer, for him at GCPL three years ago.

Strategise he did. According to industry analysts, Gambhir has been largely responsible for the eight international acquisitions that GCPL has executed in the last three years. He also was the brains behind Singapore's state-owned investment company Temasek pumping close to Rs 700 crore in GCPL for a 4.9 per cent stake. In choosing Gambhir, Nisa, the ostensible caretaker of GCPL, extends the reputation that GCPL is getting for being a young, dynamic firm whose managers are closer in age and habits to its customers.

Most of these customers flock to the company's household insectisides, like Good Knight and Hit, its two big brands and market leaders. The next successful categories are personal wash and skin cleansing, where Godrej No 1 and Cinthol are flagship brands, the latter having extended itself into the deodorant, talcum powder and shower gel space. Its soaps have outgrown the market. Finally, in hair colour, the company is busy trying to make its mark.

GCPL has vaulting ambitions - to become a significant global consumer products company - and it is with this vision that it has brought Gambhir into the fold. One of the major tasks that he and his team have set about doing is to cross-pollinate products from different parts of the globe. For instance, GCPL launched hair creme sachets in India from its acquisition in Argentina; it introduced Renew occasion hair colour in South Africa from India-based product technology; Stella, an air-freshner brand acquired when it bought out Indonesian company MegasariMakmur, has provided the DNA for its Indian line.

Fast moving consumer goods (FMCG) is one of the toughest businesses to be in since most soaps, say industry observers, are essentially the same and companies have to strive to differentiate them. Plus, running GCPL today is less a strategy and more of an operations game, say analysts, and Gambhir isn't a core FMCG person, with experience in marketing and sales. But, Gambhir has seen the best of practices as a consultant and this may prove invaluable when stitching together GCPL's vast global empire.

But it is here that Gambhir faces his biggest test. Analysts say the company has become too big in too little a time, across diverse countries and culture. One problem is trying to consolidate far-flung distribution and supply chains. Another more serious one concerns manpower. "Say, you acquire a company in South America and the entire management team there ups and leaves," says a Mumbai-based brokerage analyst. "Now, a Levers may be able to pull in a team from Brazil or Chile, but what will Godrej do?" he adds

A look at the last quarter results gives an indication of short-term headaches. Despite strong top line growth, driven by its international acquisitions, domestic growth was much lower at 19 per cent and soaps grew 24 per cent largely due to price hikes. Higher spends on advertisements and staffing further affected those numbers and the stock fell five per cent.

Still, these could be just niggles in the larger scheme of things. Godrej has an underleveraged brand, great distribution and superb technology, not to mention a dynamic, young team - which includes its promoter. If Gambhir plays his cards right, he may well set a new benchmark for himself.

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