The Hindu : Business : Murugappa in $1 billion sales club

Online edition of India's National Newspaper
Wednesday, May 05, 2004

Business

Business

Murugappa in $1 billion sales club

By K. T. Jagannathan

A. Vellayan, Director, Murugappa Corporate Board

CHENNAI, MAY 4. The Murugappa Group has claimed that it has crossed the $1 billion-turnover mark by notching up sales of around $1.17 billion (Rs. 5,200 crores) during 2003-04, a year-on-year turnover growth of 25 per cent. The profit before tax is estimated to show a growth of 40 per cent compared to the preceding year.

``This is the first time a Chennai-based group has crossed the $1billion sales,'' claimed A. Vellayan, Director, Murugappa Corporate Board.

The performance, he said, should be viewed in the backdrop of a number of constraints one saw last year such as the escalating steel price, bad monsoon and appreciating rupee.

Mr. Vellayan sounded bullish on the current year and hoped that the group would further improve the growth performance. All sectors had contributed to the growth in profit of the group last year, he pointed out. ``There was lot more focus in our activities and our management had spent a lot more time in market,'' he said. Mr. Vellayan insisted that the members of the Murugappa Corporate Board had evolved as a team and played a major role in the group's performance. P. Datta, Director (Finance) of the MCB, said the intensive meetings of the Murugappa executive board coupled with attempts to meet customer expectations had paid off for the group last year.

Mr. Vellayan said there existed possibilities for value additions in traditional businesses of the Group. He presaged growth possibilities within the group and hinted at some expansion. He exuded optimism on the project front. He expected the group to make a capital investment of around Rs.100 crores in major projects. Further, there could be capital expenditure of another Rs.150 crores in modernisation activities. The funds should come from internal resources, Mr. Datta said. To a query, Mr. Datta said the group had retired most of the high cost debt. There could still be around Rs. 50-60 crores outstanding debt, he pointed out.

Answering assorted questions, Mr. Vellayan admitted that export was the concern area. At present, exports comprised just 5 per cent of the total sales. Within the next three years, he wanted this share to go up to 15 per cent of turnover. He said, Europe, the U.S. and Southeast Asia could be the focus of the group's export drive in the coming days. He envisaged a `BPOing' (business process outsourcing)-kind of strategy for the group. Getting manufacturers outsource work, active market presence in overseas locations and acquiring small companies or brands to get into overseas market — all these three possibilities were seriously looked into by the group, he said.

Mr. Vellayan said, "We are watching the South-Asia region closely. Though two-wheeler companies have announced their intentions to go there, none of them has set foot in that region. We will go there if they go.''

On the strategy for China, he said the group was now importing raw materials for pesticides and fertilizers and cycle components from China. On the selling side, the Murugappa group, he said, was looking at exporting chains, tubes and the like. It was hoping to leverage its OEM (original equipment manufacturer) status with some Japanese companies to get into some upper-end product segments in China.

Mr. Vellayan said a study done by the group found customer recognition for individual brands greater than the Murugappa group brand. "We will push the individual brands and back them up with the group brand,'' he added. Nevertheless, he said the group was keen to "create a familiarity of its Murugappa brand'' in the Northern markets even as it sought to become a pan-India organisation. It is now present in 12 States with 20 physical locations. On moves for selling branded sugar, he said the group was setting up a 30,000-tonne sugar refinery. The group was hoping to divert a part of its sugar sales, at least 15-20 per cent, into the branded segment. To a question, he said the purchase tax and the policy of fixing cane price on all-India basis were all making sugar uncompetitive in Tamil Nadu. He hoped a clearer picture would emerge once the parliamentary elections were over.

Queried if the group was at all considering a foray into the banking field, Mr. Vellayan said, "We are seeing adequate growth over the next couple of years in whatever we are doing at the moment.'' He said the group had not even "scratched the surface of the potential in auto lending business.''

Mr. Vellayan said the group had been, like software giants, had begun campus recruitment of talents. Further, a management development centre set up at Dare House in Chennai was helping to build business leadership within the group.

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