It’s time an Indian McDonald’s was created: Nilesh Shah, Kotak AMC

In a chat with ET Now, Nilesh Shah, MD, Kotak AMC and Achal Bakeri, CMD, Symphony, discuss how consumers are moving from unbranded to branded categories and that the next big brand will come from consumption sector. Edited excerpts

ET Now: We spoke about a lot of themes which are unlisted which could potentially be beneficiaries. There is one pocket which actually benefits both urban as well as rural and that is air coolers. Coolers are no longer the mass market low class product, there are some high end coolers available also.

Nilesh Shah: Undoubtedly there is clear aspirational class in urban as well as rural India and the television has brought the lifestyle to their houses. They also aspire to have similar lifestyles and which is where a unique industry is getting created where people who can launch products which are suitable for Indian environment, Indian climate and Indian customers and which can be energy efficient. The whole paradigm is changing, we have seen that happening with LED bulbs and LED lights it is saving power, the bulk purchase have brought the cost down and suddenly not only the industry but also the economy benefits because of this.

Similarly we are also seeing that it is important to increase productivity, it is not that our labours are not working hard in fact they are probably putting 30-40% more hours than average labour outside but the productivity levels are low because of certain harsh environment like we have a bulk of the country which is fairly hot. Now if you can create products which are improving their productivity through better environment, through better climate and if they are energy efficient I mean it is a clear formula for a great success.

ET Now: I just wanted to understand if you would have any statistics internal ones are you really seeing tier two, tier three cities the demand growth being higher than tier one is there any correlation that you could give us as to how the urban demand is panning out versus rural demand?

Achal Bakeri: No, I would say that in our case at least the urban demand has been as strong as rural demand but the base in the rural market size is lower. So, obviously the growth is higher in the rural markets and has been helped by electrification.

Air coolers are a product which consume very little electricity. We are seeing our coolers go into places which we have never heard of, we see our service people go into places where there is merely one state transport bus connection per day. So, we are talking about really small places. Now we are not talking about the absolute village in the middle of nowhere. We are talking about slightly larger villages or smaller towns that fall somewhere between the higher spectrum of rural and the lower spectrum of urban. But the money is there. There is this wholesaler in the middle of Telangana who gave something like Rs 3 crore for air coolers in the month of August.

The desire and ability is not just a recent phenomenon. We have been witnessing this over the years but as years go by we see an increase in the propensity of people in the so called rural India to buy products like air coolers.

ET Now: A good monsoon would lead to higher rural income and therefore more spend but it would also do make the climate more bearable and therefore my question is does it lead to a small decrease in the demand for products such as air coolers?

Nilesh Shah: Air coolers are typically bought in the summer. The dip in temperature may be at this time of the year. However, bulk of the coolers purchases at the retail level actually start from about January-February in southern India, may be February-March onwards in central and northern India. By then, the summers would anyway be what they would be. In fact, there is a converse sort of a theory that exists and that is a trade theory. It is not really may be borne out by fact that but that every good monsoon is followed a severe summer or a good summer in our sense. Who knows, if that is true then we are talking about a bumper summer again next year.

Nilesh Shah: My question will be is rural part of India focussed on brand and does branding play a big role in a company like yours or do you face severe competition from unorganised sector and brands do not matter?

Achal Bakeri: Even today. three-fourth of all coolers sold in the country are sold by the unorganised sector but as incomes rise -- whether urban or rural -- the tendency to upgrade to branded products is witnessed and that has also been a continuous process.

28 years ago when Symphony was founded, there was nothing like a branded cooler. So over the years, 100% unbranded has shrunk to 75% unbranded or in other words zero per cent branded has grown to about 20-25% branded and that has really happened because of multitude of factors.

One is, of course, companies like Symphony coming along with better products and branding and marketing them and then, of course, is the fact that as consumers incomes rise and they sort of tend to upgrade and aspire to branded products, the products they see on television. We have instances where a farmer will go to a store, a showroom and ask for our Symphony cooler. He cannot even spell the name. He cannot even pronounce the name. He will say woh TV wala cooler chahiye and he will come with a bag full of cash and he just wants that cooler. In fact, it even happens that person really, he is just impressed by what he has seen on television but he really does not know what the product is so the dealer at times will sort of try and push him whatever product he has with him at that time. But the point is that people do aspire to buy what they see on television, what they think are better products so certainly I think that is a sign of maturing of the Indian consumer and we see that.

ET Now: So in light of that, how do you anticipate the demand picture to shape up? I know your standard guidance has been you will grow at 20-25% CAGR for the next two-three years, four years as the case may be. I am trying to shift you to thinking short term. Because of a good monsoon that has happened and the arguable uptick in rural incomes and one rank one pension, MGNREGA and a few other schemes. Do you anticipate a strong second half for Symphony, a stronger second half?

Achal Bakeri: I would say, from say July till about February, we sell to the trade and we are sort of witnessing the same kind of growth that we have in the past so far and that is more a reflection of the trade’s confidence in the company and the trade’s confidence in the brand. But the real crunch is in the summer months when it depends on how consistent and how severe the summer is across the country and February onwards up to about June.

So far, we are witnessing a very strong growth to answer your question directly and our quarter that ended in September, we had seen good growth and in the current quarter as well we are seeing a similar kind of growth but like I said that is a reflection more of the trades sentiment rather than the actual demand at the retail level which will only be seen in the summer months.

ET Now: One point Mr. Bakeri threw about a very interesting statistic, he said from 0% it is only 25% right now the organised branded cooler market clearly indicating that there is room for many out there up until when we reach 80 or 75% odd. So do you bet on companies like Symphony for the next 10 years or do you think a company like this would be a more shorter term time play because you do not know how this market is going to grow?

Nilesh Shah: One, this movement from unbranded to branded is continuous, there was a time when we used to make soaps and detergents at home and now no one probably makes it, people have moved to branded items.

Within branded you have super luxury, you have luxury, you have economical, all kinds of things. But I think this aspirational journey is a longer term journey, it is probably going to run far more than 10 years plus and we will see companies which can convert commodities to brand giving super normal return but even companies which can keep on expanding their branded portfolio and if they can come out with brands which cover super luxury, luxury, economical at the bottom of the pyramid that also should deliver good return.

ET Now: We have discussed the beneficiaries of a rural uptick but since we are on the topic of this movement from unbranded to branded and it is a well discovered theme, my question to you is, that we have not seen the super luxury brand kind of take off, it has been more been the base items which have now become brands and therefore those stocks are performing, do you see this movement happening in other sectors like, for example, a lot of people talk about milk products has been one space wherein the movement from unbranded to branded could happen. It could happen in dairy, it could happen in a lot of other products which were hitherto completely unbranded, do you see that as being the area of growth?

Nilesh Shah: I think there will be opportunity and we have seen in water one Indian brand which is doing pretty well at the super luxurious end and it is in the listed segment as well. Now you know Himalayas everyone in the world know it is the best source of probably water. Now can we create a brand around that which can then go and compete with the best in the world? I think it is possible, it is not just that Swiss Alps has the best water, Himalaya is no different. So we need to then invest into creating those kind of brands and I think there are enough stories in India where people have created brands which are appealing not only to the Indian network but also to the global network.

ET Now: Where do you see this happening, which theme, which space?

Nilesh Shah: Essentially it will happen on the consumption side. It is unlikely to happen on the industrial side but even on the consumption side it will just keep on expanding across the segment.

ET Now: Are you seeing that happening already?

Nilesh Shah: It is already happening, people are moving from dabba theatre to multiplexes that is one brand journey. People have moved even in simple things like eating outs, there is a QSR segment which is emerging, it is just a question of time when we will have an Indian chain emerging like McDonald and providing Indian foods to the rest of the world. I mean, we have gone conquered Great Britain by our curries without creating a distribution chain or a chain like McDonalds but it is just a question of time, someone will end up doing that at some day.