India Inc.’s Failure To Disrupt Is A Wealth Erosion Risk, Says Nikhil Vora

Nikhil Vora has an advice for India’s large listed companies: disrupt yourself to survive. 

A telephone handset sits on a desk on the trading floor. (Photographer: Jason Alden/Bloomberg)
A telephone handset sits on a desk on the trading floor. (Photographer: Jason Alden/Bloomberg)

Large listed consumer-focused businesses in India have matured and face the risk of wealth erosion as they have been found wanting in their ability to innovate and disrupt, according to investment fund manager Nikhil Vora.

Disruption is not happening in the listed space, but only among startups, Vora told BloombergQuint on the sidelines of Alpha Ideas 20-20. “You will have exceptions, but exceptions don’t make the rule.”

I think the failure in India is the inability of the leaders to take the risk of disrupting their own existing businesses and losing what they are at today, to the obvious risk of losing the entire business tomorrow.
Nikhil Vora, CEO, Sixth Sense Venture

And it’s true for India’s entire business landscape, said Vora, founder and chief executive at Sixth Sense Venture, citing the example of banking and financial services. Disruption in the sector is not being led by State Bank of India and HDFC Bank Ltd., but by a Bajaj Finance Ltd. and a Paytm.

Similarly, he said, Hindustan Unilever Ltd. and ITC Ltd. are not leading disruption in consumer businesses, but startups have taken the lead. When such new ventures successfully disrupt niche areas, he said, their ability to scale up becomes more apparent.

Vora has invested in a host of ventures in early states, including B9 Beverages Pvt. Ltd., the maker of Bira beer; One97 Communications Pvt. Ltd., the parent of Paytm; online retailer Nykaa; and Gowardhan Diary, the producer of Go Cheese.

He is amazed hoteliers or automobile companies have not been effective for consumers on a 10-year-forward basis. Hoteliers are not able to create the relevant supply, and haven’t gone where the consumer is going, he said. Even if the disruption was caused by technology-enabled models, there is no reason why market leaders couldn’t do what Ola, Oyo and others have done, according to Vora. He hopes, but doesn’t believe, that the leaders of today will change and disrupt.

That’s also a reason why he isn’t worried by the ongoing slowdown in consumption, reflected in declining car sales to easing volumes of the makers of staples to shampoos.

Things are not all gloom and doom if looked at from the perspective of disruptors, according to Vora. Numbers will appear lagging for soaps and shampoos, beverages, oral care and cigarettes, but those are not the categories where growth is happening, he said. Those are the categories that have saturated, and incremental growth is always going to be price-driven, not volume-led, he said.

People are consuming products in a very different fashion than traditionally, Vora said. “We need to look at consumer companies’ volumes through inclusion of different categories, and not the traditional ones.”

Brand loyalty is at an all-time low but brand awareness is at an all-time high, said Vora, reiterating that how large listed companies aren’t disrupting existing brands to create relevant ones for tomorrow.

He cited Titan Company Ltd. as an example. The company is evolving, but Titan as a watch brand it will struggle, unless it evolves into categories and sub-brands which the customer of tomorrow will be open to adapt, he said. “Companies need to start mushrooming newer brands, as the days of lesser and bigger brands may be behind us.”

“HUL thirteen years ago started to talk about the superbrand strategy, and contracted the brand offerings from 110 brands to 30 brands. Maybe, the time is right to say that 30 brands is not good for India. Consumers have a choice—consumers want a choice,” he said.

Companies can’t force-feed the consumer anymore, according to Vora, as they will not be able to push brands through the distribution channel. They will have to give what the consumer wants, leading to evolution of brands, he said.

If I were Sanjeev Mehta (chairman and managing director of HUL), I would be worried—that suddenly half a million customers who were buying offline, who were buying in traditional stores, where Lever’s (HUL’s) strength is, have moved online. The customer has moved, companies haven’t.
Nikhil Vora, CEO, Sixth Sense Venture

And there lies is advice for investors. Given the changing dynamics, he expects time correction, not price correction, for a bunch of companies in India. ITC Ltd. has gone through a period of price correction over the last 10 years, Vora said, adding that he expects that for a lot of other consumer businesses. “One can see a prolonged period of time correction in them.”

Watch the interview here

Here’s the full transcript of the conversation:

You mentioned that the listed space is either dying or will be dead soon, those companies will probably not create value. That’s strange coming from someone who has been in listed market throughout his life.

That’s pretty ironic, I keep thinking about this. I have spent almost 90% of my working life in listed market, was 25 years in listed market and yet when I look at the market, I have looked at it for some time now. I feel that India is at the zone where listed businesses are pretty much businesses which are mature and lived their life cycle. The ability to innovate and disrupt existing businesses is found to be wanting. I don’t see them playing the disruptor role, which is so critical in a market like India, where disruption is seen as an apt thing to do. I keep reflecting this, if I look at Fortune 500 and I have talked about this often. I see 90 percent of them die or become irrelevant over a period of time. I see listed market in India pretty much symbolic of Fortune 500 companies. They die or become irrelevant over a decade in cycle. The market behavior that one has seen over the last three to four years, while it pains all of us, our investors also, but it doesn’t really surprise me so much. This is something which was just waiting to happen. It happened faster then what one should have envisaged, but I don’t see that changing drastically. I am not saying as market momentum and stuff, but I think businesses slowly will erode unless and until they change and disrupt. And I don’t see the ability to disrupt existing leadership to be of a very high order or its in a very few spaces and I see that happening at a galloping space in private companies, private entrepreneurs, first generation entrepreneurs who are really taking this opportunity to disrupt market leaders. That’s the reason why Sixth Sense was formed. We thought we will invest in disruptors in consumer space. So, you know what I said in the Alpha 20 Ideas is pretty much what I believe in. Existing players, existing listed companies even if they are leaders, their ability to maintain leadership and sustain value that leadership is going to be extremely challenging. You will have exceptions, but I believe exceptions don’t make the rule.

It may well be that the current set of examples that you are seeing in listed space are not doing that because being listed is not a pre-requisite to not be disruptive. At some point of time over next 2-4 years even large listed companies could probably throw out a niche or two could be disruptive and change the model?

Yes, I agree. Like I said exceptions will be there. But when I look at broader businesses in our country right now, look at banking. You have a dominant leader in State Bank of India or HDFC Bank, but the disruption in financial services is not being led by an SBI and HDFC. It is being led by players outside that context. It’s being led by a new age consumer finance company let’s say Bajaj, which has evolved in last 7-8 years, or Paytm in some form or lot of other Fintech companies as we look at it. Disruption in financial services, which should ideally have been led by existing leaders is not being done by them.

Disruption in consumer businesses, which is close to my heart is not being led by Levers of the world or ITCs of the world and the Colgate of the world, is being led by new age businesses who are doing it in niche, in spaces which they are very comfortable doing, but the more they get comfortable in particular niche, the ability to do scale becomes more apparent. So, a Lever is not disrupting the space or ITC is not doing it. You see newer players, a Veeba is doing it in some form. You start to see it in Bira for instance, I am being biased because we own stakes in these companies. Bira is doing it in alcoholic liquor space and Parag is doing it in milk and so on. These are all relatively new age businesses which have evolved, and you will see lot many develop.

My fear and this true in a lot of it. Look at print, which Is very close to you guys, I have looked at that space not a single print player and we are talking about large existing players like the Bennett Group, Times. Look at HT for example, Jagran, so the top 3-4 players and not a single player and I am being critical of them. Not a single player has innovated and disrupted how print should be in India for the next 10 years, how Indian consumers will consume print over next 10 years. They are not going to consume print by reading a newspaper any more or that is becoming slightly irrelevant over a period of time. You have seen players evolve in that category. So, Inshorts has evolved whereas the leaders have not really done the development. Look at Auto, very interesting example. In world where top 3 Auto companies actually lose money, the GMs, the Fords and the Chryslers of the world actually lose money. You have it in India where the largest players the Tatas, Mahindra, Maruti for instance have done practically zero innovation or zero disruption in the category. Auto is a space which is getting disrupted almost completely with the advent of the Olas and the Ubers of the world. Ironically, I remember, Mr. Mahindra at some stage talking about the fact that they will have consumption issues because the sharing capability of Ola and Uber will increase and thereby people will not have cell phone cars. I fail to understand why a forward looking corporate like Mahindras could have not created an Ola in India.

But none of the hotel chains thought of creating Airbnb, aren’t these essentially tech companies which are coming out and consumer tech companies which have managed to do this. Your complaint is legitimate that the original product owners could have also thought about being consumer tech but have not thought of doing so.

Precisely my point. Hotels, beautiful example of a business like the Taj and Oberoi and all other chains that we look at. They have been static players, they have been brilliant at the product, so nothing taking out from all the guys who have done whatever they have done. But the fact is they have been ineffective for the consumer 10 years forward. What have they done to ensure that the costumer base that they have established in Taj or Oberoi moves along with them. They can move along with them only when Taj sets up another Taj. They have lost the costumers because in India you have a situation where there is so much of balance sheet that has been invested in our country. All of us somewhere have invested balance sheet capital, created asset. An