How Sanjiv Goenka transformed RPSG group into a conglomerate with diverse revenue streams

These days, most visitors to RPSG Group Chairman Sanjiv Goenka’s office in Kolkata are presented with a challenge. Three small identical glass bowls of savoury snacks are served to the visitor on a large chinaware plate. Two of these bowls have baked snacks made by an RPSG Group company, while the third has a popular fried snack by a competitor.

Goenka challenges his guests to taste the contents of the three bowls and identify which bowl has the fried snacks and which ones have the in-house products. The bowls are placed in a way so that the host can guess the answer easily.

For the guests, though, the identification process can be a tough task. Throwing a challenge to visitors is the group chairman’s way of getting direct feedback on his FMCG snacks business that has been ramped up through 2018.



Though the group’s entry into the FMCG snacks business is relatively new, Goenka is bullish about its prospects. He closely monitors the Rs 500 crore FMCG operation, tastes most new products himself before the launch and also gets visitors to check them out. The quick growth of the vertical has helped him expedite his wish to make the Rs 26,000 crore group an even split of regulated and non-regulated businesses.

RPSG Group used to be dependent on the power sector for 80% of its revenues. But today, revenues are more evenly matched between the power and other businesses. Talking of challenges, Goenka himself faced one quite early in the life of RPSG Group.

He wanted to get the newly created group into the right shape, into something he could work with, instead of what he had inherited.

RPSG Group was created in 2010-11 after Goenka’s father, late Rama Prasad Goenka, bifurcated the conglomerate between elder son Harsh and younger son Sanjiv. Harsh Goenka heads the Mumbai-based RPG Group, while Sanjiv Goenka heads RPSG Group.

The bulk of Sanjiv Goenka’s half was the power generation and distribution company CESC Ltd. To match the power revenues, Goenka junior needed his other businesses to grow faster. Before that, some of them had to turn around. He also needed to unlock some of the value trapped within the flagship CESC Ltd, which owned businesses like retail and real estate.



Three businesses in the group have turned around in the past five years — carbon black, music and film content, and business process outsourcing. Sanjiv Goenka had entered the BPO space with the purchase of Firstsource Solutions in 2012.

In October 2018, the flagship CESC was split three ways — power generation and distribution business, retail business and CESC Ventures, which includes IT and FMCG. In January, CESC Ventures and Spencer’s Retail were listed on the bourses.

The chairman of RPSG Group says: “To turn the businesses around, we decided to stop doing businesses just for the sake of top line and started focusing on profitability. In two companies, we even changed the entire top management.”


Goenka’s turnaround efforts at Saregama has literally put the company on song. He brought in new management to the company that was a relatively smaller member of RPSG Group, with an annual turnover of Rs 356 crore in 2017-18. The company, which has rights to music content in various Indian languages going back several decades, has changed beyond recognition in one year.

For the nine months ended December 31, 2018, Saregama posted a 66% jump in sales to Rs 400 crore from Rs 240 crore in the yearago period. Net profit for the 9 months jumped from Rs 9 crore in 2017-18 to Rs 35 crore in 2018-19.

Goenka expects Saregama to clock annual sales of Rs 560-570 crore in 2018-19 and annual profit of Rs 80 crore. Its portable digital music player, Carvaan, launched in mid-2017, has been a big hit and a revenue booster. The product’s look was designed after an old Murphy radio that was lying in the group headquarters in Kolkata.



Carvaan is a radio pre-loaded with digital content from the Saregama library, and has many variations. The design and music collection was put together to appeal to the older generation. Goenka recounts how he found someone selling Carvaan outside Zurich Railway Station in Switzerland last year: “I was in Zurich for a few days for a surgery on my jaw. We saw this man sitting at the railway station with a few Carvaans placed on a towel. First I thought they were copies.”

It turned out that this man has been buying Carvaans from Amazon and selling them, often 10 a day, mostly to Indian tourists. Carvaan now contributes close to half of Saregama’s revenues. More than a million have been sold so far, he says.

Enthused by its success, Goenka has now launched a smaller hand-held product aimed at the younger crowd. A soft launch happened last week. The hand-held device has internet connectivity to stream music.



“Carvaan was targeted at an older generation. The team often used me to test the product’s ease of usage,” Goenka says, indicating the latest edition will look at a different audience.

Carvaan Go is available on the company’s online store. Saregama’s growth caravan was led by Vikram Mehra, who took over as managing director in April 2014. He had worked in Tata Sky and STAR India before joining RPSG.

Another RPSG company had also gone through a top-level change. In 2013, Kaushik Roy — who had leadership roles in Apollo Tyres — took over as managing director of Phillips Carbon Black Ltd (PCBL). His turnaround story was focused on modernisation of factories and streamlining of operations at India’s largest producer of carbon black — which is mainly used in the tyre industry and to make other rubber products.

In the nine-month period that ended on December 31, PCBL sales went up 44% to Rs 2,607.57 crore from Rs 1,802 crore in the corresponding period of 2017. PCBL also doubled its profit in the period to Rs 314 crore from Rs 155 crore. The company had recorded a loss of Rs 86 crore in 2013-14.

Streamlining PCBL’s plants across India and one in Europe was the first task. Now, Goenka is planning to set up a plant of 1,50,000 tonnes in south India. The company is in talks with the state governments in Tamil Nadu, Andhra Pradesh and Telangana to find a location. PCBL will also be looking to grow its market share in value-added products like printing ink or pigments and speciality products.

The company, which has a debt of Rs 700 crore — including Rs 200 crore as long-term debt — is likely to be free of the long-term debt by the end of 2019, says Goenka. In fact, debt reduction has been a groupwide goal for Goenka. He says Spencer’s Retail and his FMCG businesses are debt free.

Another group company that has made a remarkable change on the debt front is Firstsource. The BPO unit had Rs 2,100 crore of long-term debt on its books when it was taken over. Today it has zero debt. Goenka says Firstsource had some legacy contracts the company was executing because it had wanted a bigger top line. Those have been discontinued. The services provided in these contracts had very little valueaddition possibilities.



Another factor that gave the company a shot in the arm was its win of a large contract from Sky, the UKbased DTH, mobile and broadband service provider, in 2017. Sources had then said the contract was estimated to be Rs 12,000 crore.

Firstsource, too, has boosted its consolidated sales in the nine months to December 31, 2018, at Rs 2,822 crore, up 10% from Rs 2,560 crore a year ago. These factors ensured a steady improvement in margin over the years.

Between 2012-13 and 2017-18, the return on capital employed (ROCE) for Firstsource went up from 7.5% to 13.5%. It is expected to clock a net profit of Rs 370 crore in 2018-19. The turnarounds have boosted the group EBITDA of RPSG to an estimated Rs 5,000 crore in 2018-19, against Rs 2,000 crore in 2015-16. The group’s profit before tax has moved up from Rs 800 crore in 2015-16 to an estimated Rs 2,700 crore in 2018-19. Total assets are an estimated Rs 43,500 crore and the debt-to-equity ratio of the group as a whole is 1.2:1.

Both Firstsource and Saregama are also free of long-term debt, says the chairman of RPSG Group. The three-way demerger seems to be playing out well for the group, although CESC had reported flat revenues in the October-December quarter, at Rs 1,707 crore compared with Rs 1,713 crore in the corresponding quarter of the previous year.

The demerger, however, had to overcome challenges. The group had originally planned a four-way demerger — it wanted to separate power generation from the power distribution business. But the West Bengal Electricity Regulatory Commission had raised questions on power purchase agreements between the generation and distribution entities. So Goenka decided not to separate the power businesses for the time being.

This actually made CESC attractive, said analysts Dhruv Muchhal and Sanjay Jain of Motilal Oswal. In a report dated February 5, they wrote: “CESC is among the very few opportunities that offer a play on both power distribution and generation. It is also among the few with a strong balance sheet and a healthy free cash flow generation to drive growth.”

Anuj Upadhyay, an analyst at Emkay, the Indian research arm of DBS of Singapore, said in a report on February 5 that although they have adjusted their estimates as per the lower revenues reported for April-December 2018-19, they believe the demerger will be “value accretive”.

CESC now distributes power in Kolkata, Greater Noida, three cities in Rajasthan and Malegaon in Maharashtra. It serves 45 lakh customers and has 2,700 megawatts of installed generation capacity.

Goenka says the company will try to grow aggressively with its power distribution business, but will invest in building power plants only if it makes commercial sense. The demerger had made other analysts also turn positive on the CESC scrip. They point out that the stock should do well as businesses such as retail and realty, which could be cash guzzlers or distractions, have gone out of the company.

Chirag Shah, an analyst with ICICI Securities, wrote in a report on February 6 that the company may spring positive surprises by signing additional power purchase agreements for its Chandrapur plant. Scaling up of the distribution business can be a key trigger for financial as well as multiple re-rating for the stock.

“We believe that in the medium term, the current valuations will sustain given the cash flow generation will be used to reward shareholders,” he added.

On his part, with the operations of the larger companies streamlined, Goenka sees himself spending more time on the FMCG play and growing it further. He is also betting on the new hand-held music player, Carvaan Go — which has an Apple iPod-like flat, round dial for navigation — doing well. While he is keeping his business plans close to his chest, he hints at his intentions by pointing out how Saregama has been actively wooing newer, younger audiences.

He also points out that its arm Yoodley Films has produced small-budget films such as Brijmoham Amar Rahe and Ascharyachakit, and Saregama itself owns rights for new Bollywood movies such as Total Dhamaal and Ek Ladki ko Dekha to Aisa Laga.