Repro India kicks-off book revolution in education. "Books will never be unfashionable," says Pramod Khera

09 August 2011

People

Executive director of Repro India, Pramod Khera reveals how the firm has moved away from a print-centric model to become a one-stop solution for publishers. In conversation with Ramu Ramanathan.

Ramu Ramanathan: I attended Repro India’s 18th AGM and the response that I saw from the shareholders was very bullish. Are they happy that Repro has increased the dividend from 30% to 60%? What prompted the board of directors to make this move?

Pramod Khera: If you look at Repro India’s performance over the past three-four quarters, we have been consistently delivering growth in terms of top-line as well as a healthy bottom-line. It prompted us to double the dividend this year. Everybody understands that Repro has been showing good results and the shareholders are happy. The Macmillan India deal was unexpected. It added to the interest in Repro India.

Ramu Ramanathan: Macmillan is going to outsource 75-million books to Repro over a period of five years which translates into a business of over Rs 250-crore. What are Repro’s specific plans for Macmillan India’s Chennai press? The machines? Six-million books? 148 workers? Bolstering the plant?
Pramod Khera: Macmillan will be outsourcing primarily education books, perfect bound. It is one of the largest publisher for educational books in India and Repro too has focused on servicing education publishers. Hence, the fit between the two companies is perfect. As far as Macmillan’s printing unit is concerned, more than the machinery or the facility itself, the business model that we are entering into with them is important. We believe that this is something that will become a trend in the publishing industry. As far as the publishers are concerned, printing is not their core activity. The way we have tried to build the portfolio of services at Repro, we are trying to relieve the publishers of their pain areas related to production and fulfillment. We want to become a one-stop solution for the publisher: right from managing the content to production to fulfillment. With this, the publishers are free to focus on their main business, which is getting additional titles, interacting with the authors and the last mile: getting it to the customer through marketing and distribution. Macmillan is an example of this sort of strategic alliance with the publisher where we are freeing them of the production and stocking hassles. Macmillan had a printing unit which had a limited capacity. They used to print in advance and stock the books so that when the season came, they would be able to deliver the books. Or they used to outsource to meet the demands of the season. Now with Repro they will have not only their facility but also Repro’s facilities at their disposal. They need not print books and stock in advance and as a result a lot of their working capital that is locked in inventory gets released. With Repro they need not worry about the quality as we have the expertise and the latest machines for printing as well as post-press processes. That’s the essence of this relationship. We have taken over their printing unit and we intend to use it to service Macmillan’s requirement. But there is no constraint. We can use the facility to serve other clients as well. We intend to gradually start servicing our South India clients from that facility. This will bring additional benefits to our clients based in South and secondly, we will be fulfilling Macmillan’s requirements from Chennai, Surat or from Mumbai. So for them too, we come closer to their customers. While the printing facility of Macmillan has good capability of printing two-colour and four-colour jobs, as we go ahead, we will enhance the capacity and will also try to add equipment so that we increase the overall capacity of the unit.

Ramu Ramanathan: Repro has shown a revenue of Rs 72.76 crores which is the highest ever revenue and which is a jump of almost 21% from the same quarter in the previous year. In addition to that, the profits have grown to Rs 8.7 crores. This is entirely through organic growth. My question is: will the future of print and publishing be a combination of organic growth v/s inorganic growth? For example: a month ago, in another major private equity exit in the Indian publishing sector, Carlyle sold its ownership in Chennai-based publishing services firm Newgen Knowledge Works to a consortium of private equity and venture capital firms including Franklin Templeton Private Equity Strategy, Aureos South Asia Fund and ePlanet Capital for an undisclosed sum. Media reports had put the value of the Newgen deal at Rs 100-crore.
Pramod Khera: The time has come where both, in the publishing industry and the printing industry, there will be a great deal of consolidation. If we have to compete with the global players, the size of the printing and publishing companies has to reach the global level. Today, the industry is highly fragmented. Our deal with Macmillan is just showing the way for one sort of a consolidated relationship. There are numerous other ways by which consolidation may happen. One possibility is for competing printers to come together – the printers may have competencies in different ares of the printing process. There could be another among the printers with different capabilities who actually are not competitors. In the whole process of production there are a lot of stages right from content design to content editing to content management and then printing itself: short-run, long-run, digital, sheetfed and then binding: hard case, followed by fulfillment and stocking. One need not be an expert in all the processes. One can work with partners. If the client requires multiple services, we can provide them a one-stop solution, provided the printers form a strategic alliance together. While talking about consolidation, I am not talking about acquisitions alone, I am talking about joint ventures, strategic partnerships. Developing an eco-system where print clusters thrive and that is the way this industry will move forward. Repro today is firstly, well positioned to lead the way and secondly we want to develop an eco-system and are already seeding some of these ideas in the industry. What we would want is to formalise and structure this and develop a cluster where publishers and buyers can get the entire gamut of services at one go.

Ramu Ramanathan: You mention a favourable eco-system. Right now, what are the detterents in forming favourable clusters?
Pramod Khera: One is scale. Unless and until you have the scale, you cannot develop such an eco-system. Now, how does one develop a scale? There are big global publishers who are looking for outsourcing large quantities. Today, I don’t think there are many firms in India capable of catering to such requirements. This is the reason why they turn towards China and Malaysia. For achieving this kind of a scale, it is very important to build the capabilities of printing, binding and secondly, to manage that, you require good systems. For this you have to invest. Then comes the logistics. Many a times, you are able to produce the books but not able to deliver them to the clients on time. This again should be a part of the eco-system. It should include port facilities, railway connections, road connections which enable the fulfillment of the goods delivery on time. That would complete the whole picture.

Ramu Ramanathan: Repro has gone through a huge business transformation. What have been the new technologies which have enabled it to move away from a print-centric model?
Pramod Khera: Repro has invested quite significantly in IT systems and today we can manage up to 20 plants centrally from one location through our centralised planning system. The Macmillan unit that we have acquired will be integrated in this planning system, which does the scheduling and planning for our Navi Mumbai and Surat plant. What happens is, the content from the publisher resides centrally. For this, we have invested significantly in ECM (Enterprise Content Management) from Oracle, that allows us to create a content depository which is easy to manage and which can send files to any of the machines in any of the locations. There are adequate security safeguards in place so that the publisher is confident that his intellectual property is protected and content is safe. Having done that, from the centralised location, we can monitor each and every machine, in every location: the scheduled jobs for the day, the number of forms printed, the number of exceeded forms, whether there is a bottleneck, we can juggle jobs between two machines and re-schedule the jobs to meet the requirements of the client publisher. For examle, recently for Macmillan Africa, we had to print about 1.2 million perfect bound books. We used the machinery in both the facilities and synchronised it in such a way that we could deliver the books in 16 days. Similarly, we got another order from Ethiopia, which was 5.2-million books to be delivered in a month. This fulfillment has been possible only through IT.

Ramu Ramanathan: A brief upon IT and the investment you have made? Why is it not possible for a smaller unit (Rs 10 cr-50 cr) to make that scale of investment and simultaneously be able to sweat it?
Pramod Khera: The IT investment: both, hardware and software is one part of it. The important thing is, the implementation and training of the people. Repro has invested around Rs 15-cr last year and a similar amount this year too in IT systems. Had we been a small company of Rs 50-cr turnover, we wouldn’t have been able to afford this kind of investment. A larger company is able to amortise this investment over a larger turnover and also be able to see the returns as it improves the productivity of the organisation. The smaller players find it difficult to compete. The other advantages which a smaller unit has in terms of cost and lower overheads get negated by the economies of scale and IT. The reason why I say that today Repro can seed a print cluster is that the IT services can be extended to the partners’ facilities too. If I get five units with whom I tie-up for outsourcing various jobs, they can all become a part of my centralised planning. I can actually plan the machine use on their behalf, so that the entire cluster operates from one unit.

Ramu Ramanathan: Rs 26-cr project from the Africa market for school books (which was produced at Surat). What is happening in the continent of Africa? Which are the key countries and what is the mechanism of doing business with African print buyers?
Pramod Khera: In the African market there are around 57 countries. We are doing business with 17-18 countries. Major markets where Repro has been active are North and West Africa. Additionally, Repro is also active in East Africa and Southern Africa. There is a lot of emphasis on education in Africa. Even today, one book is shared by eight students. There is a shortage of books. With the thrust on education, a lot of funding from the World Bank and other multi-lateral agencies has been given to education. The funding is towards constructing more schools and colleges, training the teachers and producing education content. Certain education material is prescribed by the government and publishers are invited to supply the books. The funding comes from the World Bank. The demand is to supply books in large quantities. One title, one million books to be supplied in one month or 15 days. The payment structure is quite secured with the involvement of World Bank. That’s how the major business is done.

Ramu Ramanathan: What is the reason of Repro being preferred over other companies? What are the premises for selection?
Pramod Khera: Repro is competing with printers from China, Malaysia etc. One reason why Repro is preferred is the scale of operations. Secondly, quality and value addition. We do a lot of value addition on the books like: converting from single-colour to two-colour to four-colour, adding a CD, better cover and so on. Third, of course is the relationship. We have been associated with that region for more than a decade now.

Ramu Ramanathan: CAPEXIL Award for largest book exports (fourth year in a row). What are the logistics of exports? How much have the operations changed in the past decade?
Pramod Khera: The CAPEXIL Award is for exporters. It is not just for the printing industry. Books is one category. We have been consistently growing our exports in terms of quantity which is the reason for us winning this award year-on-year basis. Last year we exported books valuing to almost Rs 110 crores.

Ramu Ramanathan: The Maharashtra government election work is a prestigious project which was produced by Repro’s print on demand (POD) department. How has Repro boosted its POD department?
Pramod Khera: The work we did for Maharashtra government was printing of electoral rolls. For each constituency they required 15-20 copies of the electoral rolls during election time to send it to the centres. Printing that quantity is not viable through normal printing and that is where digital printing comes in. We have a huge capacity in digital. The digital operation comprises a raft of high-end web kit: an InfoPrint Digimaster. These machines can create even a single copy of a collated book. This was quite suited for the electoral rolls requirement. We were able to meet the requirement in a short period of time. We are directly dealing with the Election Commission. We are looking at other states now after the success in Maharashtra. POD also forms an interesting and integral part of the overall solution for the publisher. We have the content from the publishers, we have a centralised content depository, we do not want the publisher to stock any books. He might get an order of ten or 5,000 or 20,000 books. If it is ten books, we have a solution in digital, if it’s 1,000 we have a sheetfed, with more than 10,000 we have web printing. All of this with the same content. This gives us the edge. We can also deliver the same content on e-book, iPad, iPhone. Repro is more of a content delivery solution provider, in print or digital format, we can make CDs, we can make the content interactive so that it can be used in classrooms. Education is our main focus, in whichever format it is required.

Ramu Ramanathan: You say, Repro has purchased an additional plot next to Surat SEZ (for additional expansion). What sort of alignment of machines are we going to see in Mahape, Surat and Chennai?
Pramod Khera: We are planning to cater to our export job from the Surat plant. While we set up the plant, our only focus was Africa. The UK market is also growing. UK market requires a definite type of product. Some of the machines required to cater to these are put up in Surat. We are focusing on the UK market for spiral bound children books. We are installing a perfector press from Heidelberg and an automatic spiral binding machine at Mahape. Two web machines from Manugraph have been installed at Surat to enhance the production capacity to cater to the markets of Africa and UK. With the volume going up, we are finding it difficult to operate from a single unit. We have acquired another unit next to it. We will add more machines. We will be adding a brand-new Kolbus bindery to the existing one. More than 70% of the Repro exports is to the African markets. The rest 30% is to the other parts of the world.

Ramu Ramanathan: What is the reason behind this success in exports?
Pramod Khera: It is very simple. Many of the Indian companies have done quite well in Africa in different industries. Africa today, is similar to what India was 20-30 years ago. The companies which have grown in India will understand this kind of market. They know how to break and enter the market and have the right products and approach. The MNCs will have difficulty to enter the African market. Indian companies find it difficult to enter into a developed country.

Ramu Ramanathan: The Repro revenue is 54% from exports and 46% from domestic. The education book market in India is worth Rs 30,000-cr. Can we expect an increase in this figure due to the Indian government spend?
Pramod Khera: Education is growing. The demographics of India are changing. There is a large population which comes under the age-group that needs education. Publishers mention about a 15-20% growth year-on-year. A large part of it happens through government channels: state boards, central boards, etc, and a part of it is through private channels. A great deal of it comes from the PPP model, public-private-partnership model. The government does not have the capacity to cater to the growing demand. They need to turn to the private sector to fill in the gap. This is a big opportunity in front of us. To some extent, there has been a shortcoming from our side to approach the government the way it produces books. The way in which the IT or the pharmaceutical industry represent their case to the government, is lacking in the printing industry. But if we put a logistical case to the government, it does listen. We at Repro, want to get more active with this and are taking initiatives through CII, associations of the print industry, who are keen to put forward the case for the printing industry. The main stream media in printing industry can play a major role in consolidating like-minded big printers like Repro, IPP, Gopsons, Lovely, SFA to make a joint representation to the government. These are some areas which we can explore.

Ramu Ramanathan: Two interesting things emerge when one examines the key financial ratios in the Repro balance sheet between 2010 and 2011:(a) reduction in the number of days for raw materials inventory; and (b) average collection period in days. ...How have you achieved this?
Pramod Khera: Reduction in the number of days for raw materials inventory is largely due to IT. With the centralised planning system, when we plan a job, it automatically analyses the paper stock from our inventory. Even when the stock is in transit it gives an update. When the stocks reach a minimum threshold level, it can automatically trigger a purchase order. It helps me to manage my inventory much better. Plus, we have a long term tie-up with companies like TNPL which enable us to get regular supplies. Similarly, with debtors we have put a proper system in place. With the help of IT we could put systems in place and bring focus on the sales team that ‘your job is not complete until the money is realised.’

Ramu Ramanathan: Every publisher I interact with is constantly trying to browbeat the cost down but from the printer’s side, the input cost has shot up…. Is the production cost and the price of a book a matter of concern for you?
Pramod Khera: Publishers have a lot of hidden costs. The inventory cost, cost of obsolescence etc… they are not able to project their requirements accurately and hence end up stocking books at excess or have a short supply. That is where we provide a solution. They see it as an actual improvement in their market and the pressure of reducing the cost of the books goes down. They are relieved of the issues of stocking and their working capital gets freed up. Hence the cost of printing does not matter to them significantly. We look at our clients as partners. They have to start feeling that Repro understands their problems and can resolve them as well. So it’s a partnership.

Ramu Ramanathan: Now with the Macmillan deal, will your publisher client feel threatened in terms of the service they get from Repro?
Pramod Khera: We have relationships with lot of publishers. We might not be managing their printing facilities as we will be doing for Macmillan. But there are no conflicts because each client is important to us. For us every customer is a partner. If we cannot deliver an order we do not take one. In fact, the Macmillan example will prompt a lot of other publishers to come closer to Repro through similar long-term relationships.

Ramu Ramanathan: While allaying fears about the impact of annual reports on Repro’s future, you said Repro has 90% focus on education; and only 5-7% is annual report. What is the future of annual reports? Has it ceased to be a print domain issue?
Pramod Khera: Repro has been printing annual reports for companies for many years, However, today the share from this business constitutes 5-7% of our total revenues. The companies are allowed to send e-reports today to their shareholders. This has reduced the number of reports that need to be printed. We have devised a solution for corporates whereby, we design their annual reports and have an e-version ready. Whenever required, we send across the e-version. Our POD facility enables printing of any number of copies as and when required. This in a way, has opened up other possibilities. The communication with the shareholders need not be only once a year. The company can choose to send quarterly updates reports to its shareholders.

Ramu Ramanathan: All eyes on Q2? Looking better than Q1? Capacity expansion orders for second quarter of 2011-12? In addition to the Manugraph presses in the Surat plant and CTP system, what else is Repro investing in?
Pramod Khera: During Q2, some of our enhancement in capacity will come in to play. We closed the quarter with a healthy order book of Rs 45-cr. With an enhanced capacity we should be able to do better in Q2. Repro has invested in a Goss M-1000 and a Heidelberg perfector press at Mahape, and Manugraphs and a Kolbus line at Surat.

Ramu Ramanathan: Final word on the future of books…
Pramod Khera: As far as education is concerned, textbooks are required, I don’t think e-book can replace the book in the near term. Educational books for the next 5-10 years, even with the pace at which technology is growing, will remain. In developing countries like India and Africa, there is a huge gap that is existing where we can step in. I don’t think book printers or publishers need to worry.

(With inputs by: Samir Lukka and Tanvi Parekh)