Grundfos will never sell something that is not strongly differentiated

By: |
Updated: March 28, 2019 5:58:19 AM

Back in 2014, Grundfos’ profit had been declining for five years in a row and the short-term task was to get that back to a decent level.

Grundfos, Mads Nipper, Grundfos Holdings, Germany, china, India, pump manufacturerMads Nipper, group president and CEO at Grundfos Holdings

Denmark-based Grundfos, the world’s leading pump manufacturer, is bullish on India, where the company claims to have a profitable market. Mads Nipper, group president and CEO at Grundfos Holdings, tells FE’s Bhavik Nair that trade wars are causes for concern for a global company like Grundfos. However, Nipper said a slowdown in China does not worry him from a long-term perspective. Excerpts:

What changes have you implemented at Grundfos over the last few years?

Back in 2014, Grundfos’ profit had been declining for five years in a row and the short-term task was to get that back to a decent level. Because if we want to invest long term, we need to have decent earnings. The first two years was for me, personally, very much about getting to know Grundfos — not just the product, but also the spirit and the soul of the company. And then, it was about making a relatively classic financial turnaround. But that was the least exciting part. That was necessary but it was the least exciting part. What has happened for the last two years was that we have focused on driving over-proportional growth. We have clearly taken market share and we have created some really exciting innovations. Some of them are in the market already and some of them will come in the next two years.

Also read: Vijay Mallya’s shares fetch over Rs 1,000 crore to govt; ED sells shares in this company

Which are your three major markets?

The biggest market is the US, followed by China and Germany. In terms of sales value, the US is the number one. The total revenue from the US is about 10-20% higher than China.

Where does India rank overall?

India is a market that has consistently enjoyed double-digit growth. It is a top 10 market for Grundfos. In 2015-16, India was not a profitable market for us. It was a loss-making one. We had to make some changes which meant we did not grow that much in those years. But the last two years were really strong and India is now a profitable market for us.

What opportunities does India hold for Grundfos?

There is no doubt that India holds a huge opportunity. India is one of the countries that has a fantastic innovation power — not only on the mechanical engineering and innovation side, but also on the electronics and digital side. There is an abundance of innovators. As an innovation country, it is one where we are scaling up rather than down. The water supply market is huge there. Globally, one of our biggest commercial opportunities in the coming five to ten years will be cooling off data centres. They are one of the world’s biggest energy consumers and they are being built everywhere. That could be one of the future opportunities.

Are you looking to go beyond the premium market?

There will always be an Indian, Chinese or Vietnamese player who can make a good pump— not a great pump — but a good one at a cheaper price. Even though we build factories in the same countries, we will probably be more expensive.

This is because we take greater social responsibilities, we invest more in innovation, we have headquarters in Denmark and we don’t have low salaries, unfortunately. So, we will never be able to compete on price. We would love to have a broader market that is not just premium; but we will never sell something which is not strongly differentiated. Because if we don’t differentiate, then we are competing on others’ term and then we will lose.

China represents a significant growth rate as far as your firm is concerned. Is the slowdown there a cause for concern?

I am worried short-term, not from a medium-term or a long-term perspective. The Chinese and the Indian economies are bound to grow structurally. Do I believe that we will face a slowdown in the Chinese economy in the next six to eighteen months? Yes, I do. Will that be something that makes us change our strategy in China? Absolutely not. And we should remember — when the Chinese talk about a slowdown, they go from maybe 6% to 4% growth. And 4% growth is something that all Western countries will die to get. So, I think it is all relative. One of the privileges of having a foundation ownership is that I don’t have to make challenging quarterly reports to a stock market. We can allow ourselves to take more long-term decisions.

Are the trade wars a cause for concern to Grundfos?

Yes, they are. For any global company, trade war is a threat. It makes things more expensive, more cumbersome. But most importantly, what it does is it creates global uncertainty. And if there is uncertainty which hits financial markets, share prices will go down, and then consultants will start calling asking to cut down costs, and hold back investments. It becomes a self-fulfilling prophecy. The terrible thing is that right now there is no good reason why the global economy should slow down. But yet, it is very likely that it will, because of the uncertainty on trade wars. I don’t think we are looking at a financial crisis. But the likelihood of us seeing a cool down that will last somewhere between nine to twenty four months, is relatively high.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1This WhatsApp feature will make your chats look dark
2This Raja Ravi Verma painting from Nirav Modi’s collection fetched Rs 14 crore to tax department
3Snapdeal offers unorganised sector an opportunity to go online, says company official