Manufacturing quality is game-changer in any business

Written by M Sarita Varma | Updated: Dec 5 2011, 09:16am hrs
Weve been adding a touch of pink, whispered the worlds largest condom manufacturer, Hindustan Latex, coyly in its promo, when the company was rebaptised to HLL Lifecare in 2008. In tune with the new profile, the Mini-ratna now churns more money out of its broad-spectrum healthcare consultancy than from the sales of its humble, but ubiquitous Nirodh.

Its thus more than a smattering of robust pink in the bottom line, as HLL Lifecare tweaks the entire rainbow of family healthcare business through blood bags, pregnancy diagnosis kits and even an unusual hospital joint venture with a US-based venture fund for setting up a string of Lifespring Hospitals. The companys CAGR (compounded annual growth rate) for the last five years has touched 21%. Not surprisingly, the R517-crore Mini-ratna is angling for the Navaratna tag too.

The jump in latex and other input prices had recently pushed up the condom prices. Another price hike is in the offing, at least for premium brands, but this is unlikely to shake the companys revenue growth, reveals M Ayyappan, CMD, HLL Lifecare. This is because of our fast-paced diversification in the healthcare segment, he told FEs M Sarita Varma in an exclusive interview. At the same time, the core business of condoms has made a large footprint worldwide, especially in Gulf countries, says Ayyappan.

As rubber prices are going north, condom manufacturers have been quick to announce a product price hike. Another round of price hike is speculated. If this happens, wouldnt it shake the sales revenue Wouldnt the high price bruise the countrys population policy

Its not just the latex costs. Several other inputs and petroleum products have become costlier, within an year. We couldnt ward off a big cost price-push.

After discussions within the condom manufacturers association, we had announced a price hike in the last six months. This was both for domestic and export segments. For HLL Lifecare, the export revenue from condoms has crossed R50 crore. There are neat margins in exports. Overseas markets, especially Middle-East, have been least affected by the price hike.

True, we may have to announce another round of price hike soon, but it is certainly not going to be big enough to bruise the countrys population policy.

First of all, the mass market brands will be spared. Price hike is likely to touch only the premium brand condoms. Secondly, it is not likely to be very high. We may go for a price hike of 10% or may be, at worst, 15%. Not beyond that. Well keep the population policy sacrosanct.

Would the company have to buy rubber plantations now to harness backward integration efficiencies As one who headed the Kerala PSU Rehabilation Plantations once, you have experience in running rubber plantations

It is too soon to answer that question. We are toying with the idea of buying rubber plantations, if the price and other factors are right. True, when we expand capacities, raw material sourcing will have to be smoothened. In 1969, HLL set up Indias first condom factory in Thiruvananthapuram with an annual production of 144 million pieces (Mn Pcs) . The production doubled in seven years. But when population grew to touch 800 million by 1985, another manufacturing unit came up in Belgaum, Karnataka.

During the last year we have expanded our condom production capacity from 1,000 Mn Pcs to 1,300 Mn Pcs per annum. Last year (2010-11) HLL Lifecare registered a turnover of R517 crore with a growth of 17%. Our net profit grew by 23% to hit R18.43 crore.

Currently, we are in the process of expanding the capacity by adding another 300 Mn Pcs. By 2015, our capacity will be in the range of 2,000 Mn Pcs. We are targetting to maintain the global leadership position by leveraging core competencies. This is a tall commitment. So, we are seriously looking at backward integration options, like buying rubber plantations.

In a first, New York-based Acumen Fund infused $20 million into HLL Life Cares JV Lifespring Hospitals in 2005. Usually, such VC funds avoid social sector enterprises like hospitals for low-income groups. Acumen was to scale up equity later. Has this happened

LifeSpring Hospitals have proved to be one of the top innovations in the health care delivery scenario. It is a 50:50 joint venture between HLL Lifecare and US-based Acumen Fund for setting up a chain of Lifespring hospitals in India. This hospital chain caters for women in the low-income group.At present, we have a string of 12 hospitals in Hyderabad. We are currently discussing about expanding this network to 24 hospitals. Each would have a 25-bed facility. This expansion would need additional capital. Acumen Fund is likely to make further investment in this project.

You have done business worth R1,131 crore through Infrastructure Project and Procurement Consultancy Services. HLL Lifecare has been evolving as a health education consultant, after it was named the infrastructure backbone for upgrading medical colleges in the country. Has the modernisation task of medical colleges progressed satisfactorily

We entered medical infrastructure business six years ago. Union health ministry assigned us the upgradation of three medical college hospitals, under the Pradhan Mantri Swasthya Suraksha Yojana (PMSSY). In all the three (Thiruvananthapuram, Bangalore and Salem) we completed the upgradation projects on time. After this, we have been awarded another three medical college hospitals to upgrade. In Phase-II, we are working on medical college hospitals in Aligarh, Rohtak and Madurai.

What is the market response to the safe pregnancy diagnosis kit Do you count on an open market presence for the product, besides government channels

CG (Human Chorionic Gonadotropin) pregnancy test kit, also known as rapid pregnancy kit, is a device for the early detection of pregnancy. It is a self-performing test, using either a card or cassette. Being an in-vitro diagnostic test, it is a totally non-invasive and therefore a safe method of testing. At present, HLL has the product available under three brand names: Nischayused for government of Indias National Programme, P-Test and Makesurefor the open market. As a new entrant to this product category, we had not been too sure about how it would be received. But then, the market response has been very good.

What has happened to the proposed vaccine and medical equipment park in Tamil Nadu What are the policy bottlenecks

We had planned this immunisation park in Chengalpat in Tamil Nadu. The vaccine project is under the final stages of approval from the ministry. It would take another three or four months to get the approval.

You have worked both in central and state PSUs. How would you compare the difficulties in managing them Is it a bigger challenge to coax turnover and profit growth in a central PSU

Compared to state PSUs, central PSUs are mostly system-driven. The public sector always gives the freedom to work. It is up to the leadership to utilise this freedom for doing something good or bad. Personally, I have felt that the chief executive can utilise this freedom and take the company forward. The real success comes out of the vision of the leader.

As far as HLL is concerned we are growing rapidly. Our CAGR for the last five years has been 21%. We could achieve turnover and profit growth by building appropriate systems in all our operations. Recruitment of the right people and capacity building of the existing workforce played an important role in our business performance. While we managed to diversify successfully, we built up on our core competency of manufacturing contraceptives.

By being uncompromising on quality, Moods condoms are exported to 33 countries. It is the first global condom brand to be registered by the UAE health ministry, Kuwaits health ministry and the Saudi Food and Drug Authority. Our destinations include diverse markets like the United Kingdom, Ireland, Latvia, Venezuela, the Philippines, Sri Lanka and Trinidad & Tobago. We have marketing representatives in many of these countries now.

All this is no marketing hype. It only shows that manufacturing quality is the main game-changer in any business, public sector or private.