Strat Talk | Rahul Kumar, CEO, Lactalis India
As #COVID19 disrupts businesses across industries, how are #leaders and organisations re-aligning to the new normal? Dairy major Lactalis India's CEO talks to @outlookbusiness6124 executive editor V Keshavdev on how they overcame uncertainty and liquidity concerns to continue operations during the lockdown. In an in-depth conversation, Rahul Kumar discusses their strategy for growth going ahead.
#StratTalk #RahulKumar #OutlookBusiness #Business #LactalisIndia #OutlookMagazine
#StratTalk #RahulKumar #OutlookBusiness #Business #LactalisIndia #OutlookMagazine
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NewsTranscript
00:00 (upbeat music)
00:02 - Hello everyone,
00:11 welcome to a special Outlook Business Webinar series
00:13 titled Strat Talk,
00:15 presented by Hyperlink Infosystem
00:17 and co-sponsored by RR Solution.
00:19 And the topic on the discussion today
00:20 is realigning to the new normal.
00:23 We are kicking off the series
00:24 with Mr. Rahul Kumar,
00:25 a dairy industry veteran
00:27 with more than 25 years of experience
00:28 across the value chain of an industry,
00:31 which deals with an everyday commodity,
00:34 but yet is complex in its operations.
00:36 Mr. Kumar currently heads the Indian operations
00:39 of French dairy major Lactalis.
00:41 Welcome Mr. Kumar.
00:43 So can you give us a sense of what's the challenge
00:48 that this dairy sector has gone through
00:50 in this couple of months
00:52 when the pandemic had really shaken
00:56 just about every part of the economy?
00:59 - You know, dairy industry as such
01:00 has demonstrated very well in terms of,
01:04 because you have read a lot of news
01:07 and seen a lot of news in media,
01:09 not a single news has come
01:12 that because of the COVID
01:13 and because of the so much crisis,
01:15 because of the destruction of demand
01:17 and disruption in the supply chain,
01:19 the farmers have poured their milk in the field,
01:22 or there is a demonstration
01:24 and there's a big issue in some part of the country
01:26 where milk is thrown and it is spoiled
01:30 and all this thing.
01:31 I think that was a very good performance
01:32 by entire dairy sector.
01:34 I'm not just naming any particular company.
01:38 I'm talking about everybody in that supply chain.
01:41 And a supply chain involves a driver, a cleaner,
01:45 from village to plant and plant to market
01:49 and reverse logistics and all those things.
01:51 So that way, in spite of a lot of pressure,
01:56 a lot of hurdles, a lot of uncertainty,
02:00 dairy sector was quite well,
02:04 they performed quite well.
02:05 The only issue what I see,
02:07 because that is also important,
02:09 I'm talking about your business point of view,
02:10 that when you have same amount of milk to be collected,
02:14 but we have no demand or demand destruction is there,
02:18 then you are making commodities
02:19 and commodities making means you are
02:21 building up inventories, okay?
02:25 And building up inventories at the time
02:27 where your inventories are not disposed of
02:30 in coming one month, two months, three months,
02:33 and still you don't have visibility
02:34 that when this crisis will end.
02:36 Like April, when we were thinking,
02:38 we were thinking, okay, let's make the commodity
02:40 because by June it will be over
02:42 and the market will be open.
02:43 Everything will be, Horeca segment will be open
02:45 and B2B will be open.
02:46 So everything will be okay.
02:47 Now, April we kept on accepting the milk,
02:52 May, June, now people are talking that,
02:55 whether we are not even,
02:56 we don't even know when is the peak,
02:58 whether it's in September or we are in the peak,
03:01 I don't know, we don't know, nobody knows.
03:03 So you are doing business in lot of uncertainty
03:07 because you have to pay farmer every day.
03:09 Every day means regularly you have to pay,
03:11 like all the dairies,
03:12 they pay farmer three times in a month,
03:14 first 11 and 21st.
03:17 So we have not stopped the payment to the farmers.
03:20 We have to pay them because until we pay them,
03:22 they will not be able to feed the cattle
03:24 and the cattle will not give the milk.
03:25 So that is a cycle, but there is a problem.
03:29 So India is now having a lot of stocks of SMP,
03:32 which is called skim milk powder
03:33 because all the dairies are making that,
03:35 and including butter, which is a by-product of a new milk
03:39 and you make SMP, then you make butter.
03:41 So every month India is adding about 40,000 tons of SMP
03:46 in our global stock in the country,
03:49 as well as about 15,000 tons of butter per month.
03:54 So this is creating pressure in terms of liquidity
03:57 of the dairy companies and their working capital.
04:01 And this is perhaps would be a little bit more tough
04:03 if the things are not improving very fast
04:05 because it cannot keep continuing.
04:08 So till date it is okay, it was managed,
04:12 but I think if it's continuous for next three, four,
04:14 five months without any visibility,
04:15 it will be difficult for dairies to continue.
04:18 And I think this will be a tough time.
04:20 - So we'll continue with this with Mr. Kumar.
04:26 We'll just take a short break.
04:27 (upbeat music)
04:30 Welcome back, Mr. Kumar.
04:36 Just wanted to understand, like you said,
04:38 that while you were preemptive in understanding
04:41 that this pandemic is going to hit India as well
04:43 and you took enough precautions,
04:46 but the demand destruction that eventually played out
04:48 and now that you're saying that it has,
04:51 now since there is no visibility
04:53 on where exactly this will end,
04:56 how are you kind of navigating your way through this?
05:01 Now, like in the dairy business,
05:04 they say it's the procurement is one part of it,
05:06 distribution and product.
05:07 If you get these three mixed together correctly,
05:10 that kind of sets the ball rolling.
05:12 But right now here you have only one part of the thing
05:15 that is really continuing well and that's procurement.
05:18 So in procurement, have you been able to kind of say,
05:23 because you are procuring, but there is no demand,
05:25 obviously prices would have come down.
05:27 So are you kind of having a gain in that sense
05:30 that procurement prices are coming down?
05:32 And so even as demand is coming off,
05:36 at some sense you are having inflation in terms of price.
05:42 - Yeah, you're right, you're right.
05:43 Because again, I have to go a little bit back
05:46 to understand this point.
05:48 See, in 2018, India was having huge stocks of S&P,
05:53 Indian stocks.
05:57 And it is cyclic in nature.
05:58 Sometimes every four years there is a huge stock
06:02 and after that, all this.
06:04 So because of the very huge stocks,
06:06 the milk prices to the farmers are very low
06:09 because nobody wanted to collect the milk
06:12 to make S&P because both domestically
06:14 as well as international, the prices are very low.
06:17 So in 2018, the situation was totally different
06:21 what it was in 2019.
06:23 So when you have very high stock of the S&P
06:27 and people are not able to take the milk
06:29 because they don't want to make S&P,
06:31 then the prices go down
06:34 because farmers have to sell that somewhere.
06:36 So this basically goes to all the corporates
06:40 where they take all the milk.
06:42 And with private also, even if they take the milk,
06:44 they have to understand the economics
06:46 and they take a lower price.
06:48 Okay, this is one aspect,
06:49 which is kind of a demand supply kind of thing.
06:52 But inherent technically what happens in dairy business,
06:55 that if you give lower price to the farmer,
06:58 he is not able to feed the animal property.
07:01 And in dairy business, and especially in milk production,
07:08 the feed is very, very important for milk production
07:11 in terms of economics of the milk production.
07:14 Because 60% of the cost of milk production
07:16 is only feed cost.
07:18 What farmer feeds to his animal.
07:21 But suppose if he is getting very low price
07:24 or not the appropriate price of his milk,
07:26 then what he can do, it's very obvious,
07:28 he will cut the feed.
07:29 Because he has not got the income to feed the cow.
07:34 And you know, the farmers in India,
07:35 the farmers are very, very poor.
07:37 They are very marginal or small farmers
07:41 who are associated with dairy business.
07:43 Now, all the dairy business is mainly done
07:45 by the very low land holding farmers
07:48 or landless farmers in India.
07:50 So they are not very rich farmers,
07:52 for them the dairy is the only source of income.
07:55 So when this happens, then what happens,
07:57 that is the first of all,
08:01 the two negative effect of that aspect
08:04 when the farmers prices are very low.
08:06 First is that he cuts the feed,
08:08 which basically influences the basic metabolism
08:14 of the cow or buffalo.
08:16 And it deteriorates the yield of the animal.
08:20 So in terms of milk production.
08:23 Also, her body is not capable to take
08:27 the next time pregnancy and calving.
08:32 So this delays the milk production also.
08:35 Because the cow or buffalo will not get pregnant.
08:40 So this is a problem.
08:44 And second is that when you don't have
08:47 this proper income to the farmer,
08:49 farmer also does not invest for the new animals.
08:54 Because he's not sure whether I'll get.
08:57 So basically investment.
08:59 I'm talking about one is technical aspect
09:01 of milk production.
09:02 Second, the investment is a business aspect of it.
09:05 So in both cases, that people have not invested
09:08 and people were, they were yield problem
09:10 and milk production problem.
09:12 In after, immediately after 2019 first quarter.
09:15 Because the SMP stocks was there,
09:17 it was almost over and government has given
09:21 a lot of subsidy to export the powder
09:23 because there was a huge quantity of powder
09:25 available in the market.
09:26 So from both the angle,
09:28 the powder stocks went down considerably.
09:30 It was almost nil after first quarter.
09:34 And the milk prices suddenly,
09:36 they shoot up by 35%.
09:39 So in 2018, the milk prices were 20 rupees
09:42 or 20 to 23 rupees in Maharashtra.
09:45 The, I take the example,
09:48 they went up to 31 rupees.
09:49 So January 2018, the milk prices in Maharashtra
09:55 was 21, 22 rupees.
09:56 And then when government of Maharashtra
09:58 was giving some subsidy to the farmers
10:00 because it was so low, it went up to 18 rupees.
10:03 And January 2020,
10:05 if you say, our milk prices were 31 rupees.
10:13 Because of this, what I explained to you.
10:17 So it was, I would say, exponentially high
10:22 in the month of January.
10:25 Nobody was aware that COVID will come.
10:29 But we were facing a lot of issues
10:31 in terms of milk production,
10:33 which has happened very less in 2019,
10:35 which is the reason I told you.
10:37 And to that extent that even in the flush season,
10:41 what in milk we have got lean season and flush season.
10:44 And flush season is basically in India
10:45 because of more buffalo milk and climate.
10:47 It starts from October till Feb.
10:50 This is a winter month.
10:52 Okay, so in 2019 winter,
10:55 there was not a good milk production
10:58 even in the flush season.
11:00 And because of that, our SMP prices in India,
11:03 domestic was, they went up to 330 rupees a kilo,
11:05 which was one year back, it was 140 rupees a kilo.
11:09 So it was almost double.
11:11 So this kind of dynamics,
11:12 we have to understand the way dairy business is running.
11:15 So till Feb 2020, the SMP prices were 300 plus rupees a kilo
11:20 because nobody was aware about the COVID crisis.
11:27 As soon as COVID crisis started,
11:30 the demand, you know, crushed by 30, 35%.
11:34 And this is a demand of,
11:36 I'm talking about the dairy sector.
11:38 Dairy sector means organized sector,
11:40 which is only 30% of the total milk collection.
11:43 You can, we have to also understand
11:45 how much milk goes from unorganized sector
11:48 from rural to urban, like for all the sweet makers,
11:51 all the (indistinct)
11:53 all the, you know, other, you know, informal system,
11:57 what you have, you have huge paneer,
11:59 you know, in Delhi market where, you know,
12:01 it is not branded,
12:01 but it is coming from nearby villages and all this thing.
12:04 This all put together, a lot of milk has becoming extra.
12:07 And those milk also started coming to the dairies.
12:10 Those who are having plans to,
12:12 on the plan to make powder and butter.
12:14 So now if you see that in, say about,
12:16 if I say first Feb 2020, SMP prices were 300 rupees plus,
12:21 and butter prices were almost 300 rupees plus.
12:24 If you take the price on 1st of May,
12:28 the SMP prices have gone to about 220 rupees.
12:31 So about 25% reduction.
12:34 And same with the butter.
12:38 So this is bound to create problem
12:41 for the farmer's price, you know, milk price.
12:44 So as the commodity prices have gone down
12:47 by more than 25%,
12:50 the farmer prices have also gone down
12:52 by ranging from state to state, from 15% to 25%.
12:57 - Right. - Okay.
12:58 So, but it has not helped anything
13:02 in terms of, you know, dairies to,
13:03 okay, you can say that, you know, some of the milk,
13:06 all the milk is not being converted into commodity.
13:09 So rest like, you know, nobody has reduced the butter rate
13:12 or cheese rate or even milk rate.
13:17 So up to that extent, the business will be coming
13:20 to the track because it was totally out of track
13:22 before COVID, because all the dairy companies
13:25 were making huge losses, I would say.
13:27 If you forget about the profit in terms of, you know,
13:29 profitability was very bad and you can track that
13:32 when you see the first quarter result
13:35 of the dairy companies in India.
13:37 You will find that they are doing very bad.
13:40 But perhaps this will improve because of that,
13:42 because still some profitability has improved
13:45 because of milk prices have gone down,
13:47 but retail prices are not.
13:52 But that is also, you know,
13:54 please try to understand sometimes what happens
13:57 when you have a lot of reduction in the milk prices,
14:00 then you have to give a lot of, you know,
14:03 trade schemes and, you know, behind this, you know,
14:06 this thing selling, because all competitors, you know,
14:09 they want to sell more because they cannot,
14:11 they don't want to be commodity.
14:13 So in a market, all the prices are same
14:16 at the consumer level.
14:18 Below that, there's a lot of competition,
14:20 which is basically goes to trade.
14:22 But okay, this is a very detailed kind of explanation,
14:25 but you're right that, you know,
14:27 that this is certainly going to help
14:30 to make the profitability level better.
14:34 So if you will compare first quarter and second quarter,
14:38 which is almost there now, okay?
14:40 February, March is the last quarter
14:42 of the last financial year.
14:43 And March, April, sorry, April, May, June is next quarter.
14:46 You'll find big difference in the profitability.
14:50 Apart from that, a lot of stocks are lying
14:54 with the dairy companies.
14:55 So that is also there.
14:57 But in spite of that, they will have better profitability
15:01 for the reason you are asking that, you know,
15:04 retail prices have not been reduced.
15:07 - We'll continue the conversation with Mr. Kumar.
15:10 We'll just take a short break.
15:12 (upbeat music)
15:18 ♪ RR Gifting, gifting for memorable brands, call out ♪
15:23 - In the sense of where did Lactalis and FY20
15:27 and what is your assessment for the coming year
15:30 in terms of, you know, growth, revenue and profitability?
15:33 How has it been for Lactalis?
15:36 Can you give us a sense of that?
15:39 - Okay, okay.
15:40 So first of all, you know,
15:41 we have our financial year from January to December.
15:45 - Okay, so calendar.
15:47 - Okay, calendar year.
15:49 But okay, but for Indian operation,
15:51 we have to do the Indian financial year.
15:55 So this year we have closed about, you know,
16:00 our total turnover of the three companies, you know,
16:03 is close to about 430 million Euro.
16:08 So if you just multiply it by 80 rupees,
16:12 you will come to know in the thousand crores.
16:16 As far as profitability is concerned,
16:17 as I said to you that this was very bad year, 2019,
16:20 very bad year because of the milk prices
16:23 shoot up like anything.
16:25 So we don't disclose our profitability results
16:30 in very specifically,
16:33 but just to give you the idea that our profitability,
16:38 you know, whatever profitability we're maintaining
16:40 is close to, let me tell you about,
16:41 say about 700% of the beta level.
16:46 It is at least, you know,
16:49 deducted by two to three points, you know,
16:51 in 2019, for Indian financial year, if I take that.
16:58 So this will happen to all the companies,
17:03 you know, basically because we are on the same boat.
17:07 - Right.
17:08 - But that is gone, that is gone.
17:11 My major point to share with you is that
17:16 how we are able to use this or try to see this crisis
17:22 as for the opportunity in terms of, you know.
17:27 - Correct.
17:28 - One approach was there, like, you know,
17:30 you have a crisis, the market are closed,
17:34 the demand has gone, so what to do and all this thing.
17:38 But our point was that we are handling 15% more milk
17:43 than what we were handling before crisis, before crisis.
17:47 Okay, and in spite of the demand, which is 35% lower,
17:51 you know, so we are having a lot of milk available with us
17:55 and we are making a lot of commodity.
17:57 But what we thought as a company here,
18:01 how to, you know, how to face this crisis
18:04 and what is the lying, you know, opportunity behind it.
18:09 So we have really worked very hard and team has very,
18:16 apart from running the routine business,
18:19 is basically, you know, try to improve our distribution.
18:24 Like, you know, okay, demand is low,
18:27 but because we are selling to certain geography,
18:31 certain market, or even certain areas of certain market,
18:34 because we are presented all across country
18:37 where we are selling milk in Bombay also,
18:38 and we are selling milk in Ghaziabad also,
18:41 and Indore, Bhopal also, and Rajahmundry,
18:44 and Bangalore, and Hyderabad, and Coimbatore,
18:46 Madurai, Chennai, Salem, around everywhere.
18:50 But perhaps we were not very much focusing
18:55 to increase the market share by putting more efforts
19:00 in the distribution expansion, because, okay,
19:02 you are busy in managing your existing market
19:05 and growing there, so there's no problem.
19:07 So that's why it happens.
19:10 But when we got, or everybody has got,
19:13 sudden destruction of the demand,
19:14 we thought that we have to take this opportunity
19:17 to offset some of the deficit by growing some extra mile,
19:22 you know, growing some extra mile and create new consumer
19:27 and create new distribution network.
19:30 So we did a lot of efforts in all the three companies
19:33 to understand where we were not selling.
19:36 And in COVID crisis, maybe that this opportunity
19:40 that you become a brand which is available there
19:42 and you are able to distribute the milk
19:45 as compared to the existing brands
19:47 which are available there.
19:48 So perhaps we worked in that approach
19:51 all across three companies.
19:53 So that is one.
19:54 We also thought that, you know, this is a time
19:57 where in future, I think this will not be normal
20:02 to keep selling the milk the way we are selling milk
20:07 right now.
20:08 It's a kind of generic milk.
20:09 You know, we're talking about only for making tea, coffee,
20:12 or a little bit on buttermilk or curd or lassi.
20:14 I think the main change will come,
20:18 which is I think started, will start come very soon
20:20 after this crisis is over, is to have a lot of milk
20:25 which is basically, you know, having a lot of ingredients
20:30 which boost your immunity.
20:31 Because immunity will be very, very buzzword.
20:34 And I think it's not only fashion,
20:36 it will become a kind of lifestyle
20:38 where we are talking about immunity.
20:40 It's not only through milk, but through anything
20:42 what builds up your immunity.
20:44 Third thing is also, you know, we thought to have it
20:48 that multitasking of the people who are working in the plant
20:52 because we saw that, you know, one day one village
20:55 is under lockdown, is under quarantine.
20:59 And the five people are coming from that village.
21:03 They are working in a particular plant.
21:06 And now we have to run the plant
21:07 because we are handling more milk.
21:09 But those people are skilled people
21:11 and we don't have anybody else to run the plant.
21:15 So we started the multitasking of the, you know,
21:18 this I think we realized after one month
21:21 that this is a very big lacuna
21:23 where you have a number of persons, but they are not,
21:27 if those three persons, they don't come,
21:29 you have risk of not running the plant.
21:31 And when you don't run the plant,
21:33 you will not be able to handle the milk.
21:35 So this is all good learnings, I would say,
21:38 in terms of, you know, during the crisis,
21:39 apart from, you know, better control
21:44 in terms of, you know, better monitoring.
21:46 I think the kind of way that we started working,
21:49 like I have been working,
21:51 in the last three months, work from home.
21:52 Everybody's working from home,
21:54 except plant people and all this thing.
21:56 So perhaps this communication has become more direct
22:00 and more routine and more regular and more frequent.
22:03 So, you know, suppose meeting is there.
22:06 So I'm also, maybe some time,
22:10 I'm also part of the meeting with our plant managers.
22:12 So I'm talking to my plant manager.
22:14 I have 11, 13 plants in India.
22:17 So I'm also directly connected with them,
22:20 which normally it was not the case
22:22 because whenever I used to go to some city
22:24 and some company and see the plant,
22:27 then I used to meet the plant manager
22:28 or by, you know, some other platform.
22:30 So I think the people have come more closer
22:32 in terms of, you know, communication.
22:36 And because this virtual platform
22:38 has removed the limitation of this hierarchy.
22:42 So you have 15 people.
22:45 So I'm also sitting, my industry director is also there,
22:48 but lower level 15 plant managers also there
22:51 and they're talking.
22:52 So the way we are interacting with the people
22:54 and perhaps we have become more responsive
22:56 and more reactive during this crisis
22:59 that we want to know that if they need any help
23:02 and we should be there to help them
23:04 because perhaps we become more kind of, you know,
23:06 protection about all these things.
23:08 So these are the very good things which has,
23:10 you know, we have come out during this crisis.
23:13 - So you are talking about, you know,
23:16 new opportunities emerging out of the crisis.
23:18 So anything specific that Lactalis is working on
23:22 like you're saying any collaborative thing
23:23 or is that in, are you working with any pharma company
23:26 or are you working in-house to create some kind of
23:30 immunity kind of a product either for children or for adults?
23:34 Can you give us a sense of what is the-
23:38 - Yeah, so this has become more, I would say,
23:40 emphasize like just before the crisis,
23:45 we have launched one product
23:47 which was very dedicated for kids.
23:51 And this product was, we called it Champa,
23:54 which was basically calcium and vitamin D.
23:58 Because in India, you'd be surprised to know
24:04 that majority of the people are deficit in vitamin D.
24:08 And vitamin D basically comes from sunlight.
24:13 And we have a huge sunlight
24:16 as compared to the Western countries, okay?
24:19 But still we have a problem of vitamin D.
24:23 And same is with the calcium.
24:26 Calcium cannot be absorbed without vitamin D.
24:31 So if you have a problem of vitamin D in your body,
24:35 then your calcium absorption will not be there
24:37 from whatever sources you take calcium.
24:39 It's milk and cheese and maybe some other food items.
24:43 And because of that, you will find a huge cases of,
24:46 you know, bone related problem,
24:48 arthritis and all these things.
24:50 This is happening at very young age.
24:51 This is one of the reasons.
24:53 So we designed this product and we launched it
24:55 and still, you know, because of crisis came,
24:57 it is a bit disturbed.
24:59 But this is a product.
25:01 Then we are working on a product
25:02 which is basically coming to the same kind of thing.
25:05 You know, that is, we have another problem
25:08 in our Indian women is that they are lacking of iron.
25:13 Okay, and iron is basically we're talking about,
25:18 when you talk about the medical terminology,
25:19 less hemoglobin.
25:20 - Right.
25:22 - Okay, so hemoglobin level should be 12% or 11%,
25:25 minimum, minimum.
25:27 It should be at least 14, 13, 14%.
25:29 But you take any women, especially, you know,
25:32 the middle social income and all,
25:36 it will be as bad as 7%, 8%.
25:39 So we are already working
25:41 and I think it will be coming very soon.
25:44 The iron-rich milk.
25:47 - Okay.
25:48 - So what I mean to say that, you know,
25:51 this is the way we've already started working.
25:53 But coming to the immunity kind of buildup,
25:55 I would say that, you know,
25:57 any milk is immunity builder, any milk product.
26:02 So we are coming with the yogurt,
26:05 which is first time in India, you know,
26:09 in terms of from Lactis company.
26:11 And we, at global level,
26:14 there are some products which are, you know,
26:16 they are under development,
26:18 where they're talking about, you know,
26:20 to have better immunity and all these things.
26:22 So we'll come to more things.
26:25 But in India level, we are already,
26:27 already now working on this kind of products.
26:30 - Right.
26:31 So in terms of, you know, growth for the coming year,
26:36 where do you see that coming?
26:38 It will be from new product categories or existing.
26:40 And second thing, will there be more price hikes
26:43 to make up for the losses
26:44 that you've seen in the past year?
26:46 So, you know, will we see,
26:48 not just for Lactalis,
26:50 but broadly all dairy companies coming together
26:53 in unison to increase prices,
26:55 or will we see prices where they are for consumers?
26:58 - So what I believe that prices will be at the same level,
27:03 because I give you the, why I'm telling you.
27:07 See, there was a price hike,
27:11 which was there till Feb.
27:14 Okay.
27:15 I told you, 31 rupees or after that,
27:18 prices are down by 15 to 25,
27:21 mainly 15%, I would say.
27:23 So, but we have a lot of commodity built up
27:26 at the lower price,
27:27 because prices have gone down,
27:30 milk prices have gone down.
27:31 Now I'm assuming,
27:33 I'm assuming that the crisis will be,
27:36 someday it will be over.
27:38 Okay.
27:39 And that someday may come,
27:41 maybe in December, maybe November,
27:43 maybe January,
27:44 February, we don't know,
27:46 but this is the time horizon anybody is taking,
27:49 because I'm talking about our experience
27:52 with the rest of the world.
27:54 See, in China, they started in December,
27:57 and they were there in lockdown up to March.
28:02 And after four months,
28:06 I don't think they are totally free,
28:08 or are still, still.
28:09 So I think it's taking about seven months
28:13 to become a reasonably, you know, comfortable,
28:17 reasonably comfortable, not fully comfortable.
28:19 So when they started in December,
28:21 and they are now saying about,
28:23 they're opening the malls,
28:24 and they're opening the economy and restaurant,
28:26 blah, blah, blah.
28:27 So they took about seven months, six months,
28:31 seven months at least.
28:33 Here we started in April, I would say,
28:35 first April, because on 25th March,
28:39 our number of cases was only 560.
28:42 - Okay.
28:43 - And today we have more than five lakh.
28:47 So I think India will take more than seven months.
28:51 So when I take more than seven months,
28:55 I never started in April.
28:56 So I think it will go up to December.
28:59 This is what my-
29:01 - Nine months.
29:02 - Yeah. - Nine months.
29:03 - Yeah, my analysis is.
29:07 So I think up to that time,
29:10 the demand would be at lower side.
29:12 Even the restaurants are open, say by September.
29:16 I don't think you will,
29:18 or I will be able to go to restaurant,
29:21 at least from next month until we are doubly sure.
29:26 Of course, home deliveries will be there.
29:28 So it's not that all the business is only on the,
29:31 will be dependent on restaurant.
29:34 So after that, there will be,
29:36 up to that time,
29:37 there will be a lot of stock of S&P and butter in the country.
29:40 So perhaps maybe the farmer's price will go up.
29:45 Okay, because they have crashed, no?
29:49 They have also crashed by 15 to 20%.
29:51 Okay, they may go up by 5% or maybe 7, 8%.
29:56 But selling price will not be there
29:57 because industry will still be having a lot of commodity
30:01 which can be used for milk, you know?
30:04 - Right.
30:04 - Milk for the, at lower level.
30:07 So perhaps this will not be the case in terms of,
30:10 and perhaps, if I see from other angle,
30:15 when you have a very steep drop in the demand,
30:19 to regenerate the demand,
30:21 perhaps it will be logical not to increase the price,
30:26 let the demand grow up.
30:28 So that, because it is,
30:32 in milk business, it's quite directly related,
30:35 the price versus demand.
30:36 It's a very, you know, very basic items.
30:40 So maybe that dairy's company would try to get more demand
30:43 than, you know, increasing the selling price
30:46 if the profitability level is okay, maybe reasonably well.
30:50 So I don't see any price increase at least till
30:53 next one year, or maybe up to May 2021.
30:57 - Just wanted to understand, like you're saying that
30:59 till we are talking of next March,
31:03 and we have seen, especially in the case of lactalase,
31:07 that you were the one who have done
31:09 aggressively grown through acquisitions
31:12 since your entry in 2014.
31:15 So, and there were talks before, I think,
31:18 this pandemic broke out, that you are still looking at
31:21 an acquisition in the north,
31:23 because you had Tirumala in the south,
31:25 Anik in the central, and Prabhat in western,
31:28 and you are looking at north and the eastern.
31:31 So is there an realignment of strategy,
31:34 and you're saying that now let's just consolidate
31:37 what we have, rather than going out and acquiring,
31:40 or is this a good opportunity where you could have
31:42 some distress assets coming your way,
31:44 and that could, you know, further bolster
31:48 your appetite for acquisition?
31:49 So how are you weighing the...
31:52 - You know, it's a very, very important question,
31:56 a very interesting question.
31:58 See, you have to see that whatever we are doing,
32:02 it is being done under certain roadmap
32:05 and certain strategy, okay?
32:08 Now, the roadmap of lactalase is that, you know,
32:12 we have to be a very, very prominent player
32:14 in Indian dairy market,
32:16 because that's the way that the lactalists
32:19 looked to this country as a very potential dairy country,
32:24 because we are the largest producer of the milk,
32:27 as well as largest consumer of the milk,
32:29 because whatever we produce, we consume,
32:31 and we consume 98% of total milk what we produce,
32:36 which is nowhere in this world,
32:38 where, you know, any country is consuming 98% of the milk,
32:43 whether it's in Europe or Australia or New Zealand,
32:46 and New Zealand, they are exporting 94%.
32:49 They're consuming only 6%.
32:52 So this is a country for the future,
32:54 as far as dairy is concerned,
32:55 and lactalists being a larger dairy group in the world,
32:58 and only dairy, they don't have any other business,
33:01 they know that which country or which zone
33:04 or which continent they have to invest.
33:07 Point number two,
33:08 when we want to become a prominent player in this country,
33:13 what are the options we have?
33:14 You know, the options are,
33:16 either we go for some green field projects
33:20 to invest in this country,
33:22 or we acquire the company and grow them, okay?
33:25 And let me tell you, to be very specific about lactalists,
33:29 they are, in their business model,
33:32 acquisition has a important place,
33:36 where, you know, they keep acquiring the company
33:39 and do the synergy, you know, with those companies,
33:44 and have a lot of, you know, synergy effect of the,
33:47 you know, to grow the business.
33:50 In last 15 years, they have acquired about 105 companies.
33:55 Lactalists are a group in the world.
33:57 So every year, they acquire about six to seven companies,
34:00 okay, that's the kind of,
34:02 that kind of a business strategy model they have.
34:05 So their, you know, lactalist approach is that
34:10 they should get 60 to 65% growth
34:13 from the existing business, that is organic growth,
34:17 and 35 or maybe 30% comes from inorganic growth,
34:21 by acquiring the companies.
34:22 And then after that, you know,
34:23 they keep growing the business in the existing companies.
34:27 India is no exception.
34:29 And India is still at a very, very low level of business.
34:33 You know, if you talk about the total business of lactalist,
34:35 this is about $22 billion or 20 billion euro.
34:39 Today, we are about, I told you about 430 million euro.
34:42 So we are talking about 2%, 2.5% maximum.
34:45 So this is not the end.
34:47 I think this is the beginning.
34:49 Not to have, you know,
34:51 India should have a good percentage
34:52 of the turnover of the group,
34:54 because of the country's population
34:56 and growth and all this thing.
34:59 So this is point number two.
35:01 So point number three is that what are the options we have?
35:05 The options we have is that we have both,
35:08 you know, both options executed very aggressively.
35:13 One is organic growth as well as inorganic growth.
35:16 So we will be looking for the acquisition.
35:19 This is not the end.
35:20 This is not the end.
35:21 And because this is our company's philosophy,
35:23 that we keep growing by both organic and inorganic growth.
35:28 Now coming to your question that, you know,
35:30 when it would be possible, you know.
35:33 So what I mean to say that, you know,
35:35 when we acquire a company,
35:38 it takes some time to stabilize it.
35:39 You know, Tirumala took about one or two years.
35:42 And then Anik was there,
35:44 and in between Prabhat came and we were,
35:46 you know, it's only one year, not even one year.
35:49 So we started in April, 2019,
35:51 and in between this COVID came.
35:53 So it is under, you know, integration, what we call it.
35:57 So it was time to look for another, you know,
36:01 another acquisition.
36:03 And perhaps this is still on.
36:05 It's still on.
36:07 The only thing is that, you know, after this crisis,
36:10 you know, there may be some good acquisitions options,
36:14 because sometimes it happens that, you know,
36:16 some either the company will come very strong,
36:19 or a company will not be able to come very strong.
36:23 So there might be some companies who are not been able to,
36:27 you know, come out from this crisis,
36:29 and they are maybe they are ready to sell the business.
36:33 So we will be certainly looking up for those options.
36:36 - Do you have any proposals to that extent?
36:40 - Proposal, we have not worked on that,
36:43 but always there are options, you know.
36:47 When I said, see, in acquisition,
36:51 the proposal is not important.
36:53 The right, what do you call it?
36:58 - Energy.
36:59 - What is the right, yeah, right option is very important.
37:03 See, somebody comes with a proposal,
37:05 but perhaps, you know, we are not interested
37:07 in that proposal in terms of the capabilities
37:10 that company has, or the kind of, you know,
37:12 the business they have, or the kind of, you know,
37:16 transparency in their accounts are there.
37:19 So these are the very, very important, you know,
37:22 factors when we evaluate any proposal
37:26 or any acquisition options.
37:27 So, but there are options,
37:29 because it's not that nobody wants to sell
37:32 that any business, or they are not interested,
37:35 provided they see, it's very simple.
37:36 If somebody gets a better valuation,
37:40 and is able to sell the company,
37:42 and he wants to diversify into another business,
37:46 or maybe some other business.
37:49 So certainly, if people sell,
37:50 that's what acquisition is all about.
37:52 The main point with the Lactalis is,
37:56 the Lactalis does acquisition of only dairies,
38:00 because they're only in dairy business.
38:02 So they will acquire the dairies,
38:06 and sometime the dairy companies,
38:07 those who sell, they go to some other business,
38:10 non-dairy, or maybe non-food,
38:11 or maybe some other.
38:13 So this will happen, and this will keep happening.
38:16 But nevertheless, this will be more clear,
38:19 more clear when the crisis is a little bit about to end.
38:24 And also depends on the group position, you know,
38:28 because group is also in the presence in 150 countries,
38:33 and each country is under this crisis, you know.
38:38 So maybe that Lactalis is very big business in Brazil,
38:43 and Brazil is one of the worst country today.
38:47 And they had a very big business,
38:50 they are the largest dairy company in Italy,
38:52 and Italy was a worst country two months back.
38:54 And maybe the France, France is the 35% business,
38:59 but France was very badly hit,
39:00 now France is on the track.
39:02 And good business is there in US,
39:05 Lactalis US, and US is still under that kind of crisis.
39:11 So maybe that it all depends on what position group takes
39:15 in terms of their acquisition strategy,
39:18 maybe because this crisis is really very, you know.
39:21 - It's not a national crisis, it's a global crisis.
39:24 - But overall, it doesn't change the philosophy
39:27 or the strategy of the company,
39:29 at the global level or at the India level, that's true.
39:32 - Okay, so we have just got two questions from the audience.
39:36 One is from Arne Loza,
39:39 he's the founder and CEO of Hyperlink Infosystem.
39:42 He has a question for any business after COVID-19,
39:45 how mobile apps to CRM solutions
39:48 and how cloud technologies are taking, you know,
39:53 center stage in a company strategy.
39:55 So according to you, is that a need,
39:59 or is that a time come for, you know, cloud strategies
40:03 where companies will really look at outsourcing
40:06 or some of their-
40:08 - No, no, I think I missed this point.
40:10 I would have shared this point.
40:13 See, during this crisis, one is also very important,
40:15 the way we distribute, the way we distribute our products.
40:19 And if you see that our,
40:21 traditionally I told you that the milk was basically
40:24 distributed by traditional channels
40:26 and through retail shops, home delivery, and all this thing.
40:29 But a lot of, you know, experiments
40:33 and then, you know, all this thing happened
40:36 during this crisis with the mobile app applications,
40:39 you know, in terms of even milk deliveries.
40:42 And because we are also selling milk
40:44 through some e-commerce platforms in Chennai, in Bangalore,
40:47 in other parts of the country.
40:49 And we found a good jump, you know,
40:53 in terms of direct deliveries from those e-commerce company.
40:56 So this is also a very, very important point.
40:58 I think this will also be, today,
41:01 this milk distribution through this mobile app
41:04 is hardly maybe, I would say, one to 2% maximum.
41:07 But I see within coming two to three years,
41:10 or maybe maximum five years, it will go up to 10%.
41:14 Because here, you know, the convenience,
41:18 the sheer service level, and the way overall,
41:23 it is economical from the entire supply chain point of view.
41:29 Because if you are going to traditional channel,
41:32 you supply to some distributor,
41:34 the distributor goes to retailer,
41:35 and that retailer, you know, maybe supplies to the household
41:40 and he also takes some home delivery charges.
41:43 But if you take this as another channel, another option,
41:47 perhaps it's more economical to this thing.
41:51 And of course, cloud sharing and all this thing,
41:55 it is already there.
41:56 But even this is all, you know,
41:58 basically what we are talking about mobile apps
42:00 and all will lead to that.
42:02 But this will have a good expansion
42:04 and good growth, I would say, in terms of, you know,
42:08 in terms of the way we are selling dairy.
42:11 Because this is not only a good service level
42:14 or economical to the consumer,
42:15 it is also very good for the dairy company
42:18 to have a direct contact with the customer.
42:21 - Okay.
42:22 - So dairy company, they know the customer,
42:25 they can launch the product
42:26 by direct contacting the customer,
42:29 take the direct feedback to identify some key customers
42:33 and take any product launch feedback
42:35 and have a lot of cross promotion.
42:38 So, you know, this kind of, you know,
42:40 additional things which is not possible
42:43 because you're blind after you supply to retailer
42:46 or agent or distributor.
42:48 So I think this is also a very important point
42:50 from business point of view.
42:51 - I just wanted to add to this question
42:53 as an interesting point.
42:54 So like that we have seen quite a bit of milk startups
42:57 that have, you know, kind of come up.
42:59 So, and we have seen a lot of traditional companies
43:02 also kind of hedging their bets,
43:03 I mean, taking some stakes or, you know,
43:06 doing some kind of an investment in those kinds of startups.
43:10 So is that a grain of thought
43:11 that you would also consider that, you know,
43:14 by investing in a milk startup,
43:16 which generally has that ecosystem ready
43:19 because traditionally big companies don't innovate
43:21 it's just the small startups guys who innovate better.
43:24 So instead of looking at (indistinct)
43:28 like India invest at least in milk startups.
43:31 - I can only frankly that, you know,
43:34 we always invest in dairy here.
43:36 Dairy means, you know, dairy business.
43:39 This we have never thought that we have to invest
43:41 in this kind of where this dairy startup,
43:42 where it's basically less dairy, more IT
43:45 or more technology, you know,
43:48 in terms of which is not a kind of technology
43:51 which is going to procurement or production
43:53 or going to a distribution and customers,
43:56 CRM and all this, you know, that kind of this.
43:59 So every company has sometime
44:02 they have their own kind, own, you know,
44:04 initiatives to do that.
44:06 Like we also have in terms of, you know,
44:09 because we have about 400 and roughly about 500
44:13 our own, what do you call it?
44:15 I don't say parlor, it is distribution centers.
44:18 So in Tirumala, it's a Tirumala distribution centers
44:20 in Anik is Anik distribution center.
44:21 Prabhat we are now, now we'll be launching that.
44:25 But in within Tirumala and Anik
44:26 we have about 500 of these centers,
44:28 which are basically, I would say that is our,
44:31 our small distribution system.
44:34 I can say that this is also our own startup
44:37 where we have established this kind of 500, you know,
44:40 outlets, which are, which are in, you know,
44:43 in the market places where the residential colonies
44:46 and all this thing is there.
44:48 And we, this is very properly IT linked.
44:51 So, so, so we know that, you know,
44:53 we supply to which a retailer and all this thing.
44:55 And then, you know, we organize the inventory,
44:59 inventory maintenance and logistic and all.
45:01 But I'm quite sure that the way you are talking
45:04 about startup, which are coming very, you know,
45:08 very large numbers and some of the,
45:10 are very successful also.
45:12 And the, the very, very peculiar thing
45:15 about these startups are, okay,
45:19 they are, they are kind of startup.
45:20 We are giving farm milk or A2 milk or organic milk.
45:23 This is one kind of startup where you are,
45:25 you are unique in terms of the product.
45:28 And second kind of startups are there
45:29 within terms of distribution.
45:31 So, so, so, so people have come with the,
45:35 with a startup like, you know, Superdairy,
45:37 which is, which started with the milk.
45:40 Now you are, milk is one component,
45:43 but they started selling everything.
45:45 Now, bakery also is, grocery, bakery,
45:49 breakfast item and all.
45:50 It's very convenient because when I'm,
45:51 when I'm a milk consumer from that particular startup,
45:54 now I got everything.
45:56 So I, I, I become, I become a kind of, you know,
45:59 I don't go to big basket now.
46:01 I go to this startup because I'm getting milk daily.
46:04 So, so I get, so maybe that this is a possibility
46:07 where, where we, we can, we can invest
46:09 or we can, we can work with those, those startup.
46:13 But I, I will say that even today,
46:15 this volume is not very, very, very large,
46:18 but in coming future, it will be,
46:19 will be a big proportion.
46:21 Today, it may be one or 2%,
46:22 but in coming future, it will be 10% in the next five years.
46:26 We built because of the sheer convenience
46:28 and advantages of what I have shared with you.
46:32 - Okay. Okay.
46:33 There's one more question from Mr. Mukul Vasisht.
46:35 He's the director of RR Solutions.
46:37 He's saying that the current crisis,
46:40 we have seen that, you know,
46:42 receivables have kind of stuck, especially for small.
46:45 So how can small organizations survive
46:48 and grow in these kind of, you know,
46:50 current scenario where receivables are hard to come by,
46:54 especially, so how can a small organization thrive?
46:57 And you are in your supply chain kind of deal
47:01 with small, lot of the small individual enterprises.
47:04 - No, frankly speaking, we are not at the same level of,
47:08 you know, performance or KPIs before COVID.
47:12 But normally, you know, the milk business
47:15 is a cash and carry business.
47:16 It's basically cash and carry business.
47:21 And that is a very, you know,
47:24 basic design of the dairy business, where we go,
47:27 which I don't know about the, you know,
47:29 how this confectionery items or snacks
47:32 and other small, small biscuit, bakery, you know,
47:36 grocery items and how the credit takes place.
47:40 But basically, it is a cash and carry,
47:44 which you see to your buying of milk.
47:47 It is basically cash and carry,
47:48 or even somebody is delivering milk at home,
47:50 you pay after one month, okay?
47:53 But that fellow has to pay on daily basis.
47:55 Or you buy to some, you go to some shop,
48:00 you just pay the milk and payment,
48:04 and then you get the milk.
48:05 So that's the way it is there.
48:07 So whatever, you know, problems I would say we had,
48:11 it was more of an operational problem
48:13 rather than intentional, intention problem.
48:16 Because, you know, there was only fixed timings
48:20 from six to nine, where milk was allowed to distribute.
48:23 Okay, we distributed the milk.
48:25 But there is a reverse logistic in milk,
48:27 where in the morning, five o'clock to seven o'clock,
48:31 a person goes to deliver the milk at the shops.
48:33 When those time, maybe shops are not open,
48:36 the milk is just put.
48:38 You have to understand the peculiarity of the business.
48:41 And when he finishes the entire distribution
48:44 from the last shop, he starts collecting the crate
48:47 as well as money also, the same reverse logic.
48:50 And wherever he has placed the first crate
48:53 in the five o'clock in the morning,
48:55 perhaps that time the shopkeeper was not there.
48:57 And then he comes around 10 o'clock
48:58 and he gets the money and crates from there.
49:01 But perhaps because of this COVID situation,
49:04 restriction, police and all this thing,
49:05 it was not possible.
49:06 And people were stopping the plant,
49:08 shops and all this thing, restricting the movement.
49:10 So we had some kind of, you know,
49:13 outstanding, what you would use, receivable problem.
49:17 But this is, as I said, nobody does it intentionally.
49:21 So maybe you will get it.
49:23 Only good thing, you know,
49:25 what we are thinking for the future, you know.
49:28 It has to be, I don't know about other industry
49:33 or other categories,
49:34 but in milk business, it still is on cash.
49:37 - Largely, right.
49:40 - Largely on the cash.
49:41 And the cash is also with a very small denominator.
49:44 10 rupees, 20 rupees, okay, 50 rupees maximum.
49:48 So this needs to be a kind of improved
49:51 at a step-by-step to the digital platform.
49:56 Where even, and digital platform
50:01 has to start with the consumer.
50:04 Because if the consumer comes with 10 rupees note
50:06 or 20 rupees note, what retailer is going to do that?
50:09 He has to go give it to his distributor
50:11 and distributor has to give it to company.
50:14 Or he has to go to the bank,
50:16 which he doesn't want to go to the bank
50:17 because he's totally tired.
50:19 You know, milk business is, you know,
50:21 night three o'clock till,
50:22 for him, up to seven, eight o'clock.
50:24 So he's just, you know.
50:25 So handling cash becomes a problem in the system.
50:28 So if something can be done where, you know,
50:34 for milk, you know, you have started
50:37 from the digital payment right from the consumer.
50:42 Seamlessly, I think that will also have a lot of impact
50:46 on the dues and the sale.
50:47 Because sometimes when you have to physically collect,
50:50 then this becomes a problem.
50:52 Even in the normal circumstances also sometime.
50:55 - Okay, okay.
50:56 So thank you, sir, for taking time out.
50:58 It was a really fruitful and engaging discussion
51:01 and some very good insights from you.
51:04 So we really hope that things really turn out well
51:10 and business as usual, just for everyone.
51:14 Thank you, Mr. Kumar.
51:15 Thank you for taking time.
51:17 (upbeat music)