Aug 8, 2008

Business - What ended the reign of mighty business houses of Delhi

Sitting next to a sandstone Buddha figurine in his large, elegantly modest room in Gurgaon , Arun Bharat Ram, the chairman of SRF closes his eyes and wonders what the economic clout of the erstwhile DCM group could have been if it hadn’t splintered. The grandson of DCM’s founder Sir Shriram, who today at 70 is part of the extended family’s old guard, almost sounds like Mahatma Gandhi on the partition of India.

“At the turn of the twentieth century, there was virtually no industry in the whole of North India including Pakistan. My grandfather was a pioneering entrepreneur who kickstarted the industrialisation of the North. Even after he died, in the mid-60 s, DCM was among the five biggest business houses in India. With each successive split, the economic clout of the family has spiralled downward. If we had stayed together, our combined valuation would have been among the highest in India,” he says without trying to mask the sadness.

Nostalgia is a condition as common as a common cold and rears its head more frequenly as you age, but Bharat Ram’s lament is the tale of Delhi’s traditional family business sultanate. At the time of Independence, the turnover of halfa-dozen Delhi-based big business families — the Dalmias, Thapars, Shrirams, Nandas, Modis and Singhanias — accounted for nearly 10% of the country’s GDP.

Seth Ramkrishna Dalmia, was in fact reported by Time Magazine, to be the third richest Indian industrialist behind only JRD Tata and GD Birla upto the mid-50 s. Now, large parts of the traditional Delhi family business empire is either dead or irrelevant, and the ones that have survived are nowhere close to the glory of the heydays.

While it was the changing business landscape of the post license-quota raj and the inability to transform swiftly that did most in, intra-family squabbles and ego clashes rendered them too fragile to even mount a comeback bid. The ones who have survived are not outright market leaders in their substantial revenue generating businesses , but they are steady players, sticking to their core businesses without drastic diversifications.

Says Rajiv Memani , managing partner, Ernst & Young India, who has often been a professional advisor for many ertswhile maharajas of Delhi: “The old set are mostly gone. Only some individuals and some sub-groups are doing well. None of these groups are in the premium position that they were in. In the new Delhi landscape, the new Sultans are Ranbaxy, Bharti, DLF ,HCL, Jaiprakash Industries, and Jindals. They are the new big league,”

Arun Bharat Ram who got the ownership of the tyre cords company SRF during the 1990 carve up of the DCM group — the largest of the Delhi family business of that time — feels that as with most large business families, DCM’s undoing too was the inability to manage the differing aspirations of various family members, and professionalise management fast enough. “Although my grandfather was a competent businessman, his singular failure was that he couldn’t prepare the next generation and use their skills in a complementary manner. There was too much dissension between my father and uncle even when I was young. There was a turf war going on within the family and as a result too many factions got formed in the company,” he says.

Today, armed with the benefit of hindsight, Bharat Ram says he has clearly defined the roles for his sons at the Rs 2000 crore SRF, in accordance with their aptitude and capabilities so that they don’t step on each other’s shoes. While elder son Ashish Bharat Ram, the MD of SRF looks after strategy, finance and management reviews, Karthikeya, the younger sibling, handles IT and quality management.

Bhupendra Kumar Modi, the son of family patriarch Gujar Mal Modi, another significant member of the Delhi Club, says he parted ways with the family in the early 1980s because the undivided Modi group wasn’t professional enough to accommodate his modern management ideas he tried to bring in after his US education . “Different people have different ways of thinking. I wanted to put up contemporary systems and processes in place, but nobody warmed up to the idea,” says the chairman of Spicecorp and a self-styled interfaith harmony advocate.

Known as the joint-venture king of India, Modi began a series of business alliances with global corporations, starting with Xerox, with the money he got after splitting from the family. “Some of my family members also failed to understand that in those days, access to technology was not available without giving away equity. JVs was the way to go,” he says. Today, Modi says, he has completely dissociated himself from the old family and has developed a unique identity for his businesses away from the Modi name.

Wearing his trademark brown cap, and clad in a white Polo Ralph Lauren tee, jeans and uber trendy red and white Puma sneakers, the Beverly Hills-based billionaire who drives a Rolls Royces when in Delhi (registered in the name of the Mahabodhi Society of India which he heads, if you must know), he even brandishes his business card to ram home the point.

It merely says Dr. BKM. “Tell me where’s the Modi name. The cards I use only has Dr. M printed on it. You can call me doctor M,” Modi adds for good measure. Having sold his mobile telephony firm Spice Telecom to Idea for Rs 2716 crore, Modi says he is in the process of totally restructuring his conglomerate , both in terms of its business focus and its geographical reach.

Under his new grand plan, Modi’s companies would only operate in areas where the products and technology can be taken global. Ergo, the telecom business, that only had the license to operate in parts of North India was sold, and he is in negotiations to sell off his handsets business to Sony Ericsson. “Our four distinct business lines will be mobile value added services (VAS) under the Cellebrum Technologies brand, retail , BPO, and entertainment,” he says. “I want to be in businesses that don’t require any kind of license, or are based on regulations, and that are non-political ,” says Modi.

All In The Family

With funds from the Spice Telecom sale, Modi says he’s scouting for acquisitions in the media and entertainment space. While his efforts to buy a 32% stake in Sony Entertainment Television have run into trouble, an unfazed Modi says there are plenty of other entertainment channels up for grabs and he has a more than adequate budget of $2-3 billion.

As someone who professes a deep interest in dharmic religions (he has demanded Indian citizenship for the Dalai Lama) and Indic philosophy and culture, Modi wants his businesses too to recapture the glory and geographic spread of the ancient Indian civilization. “I want my business to span I-to-I .” That’s Israel to Indonesia in Modispeak.

Along with ushering in professional management and re-aligning his businesses , Modi is also making sure his two children in the business, Dilip and Divya Modi have non-competing roles. While Dilip Modi now heads the BPO and VAS business, Divya Modi handles the retail and mall ventures besides investor relations . “The biggest problem with the younger generation today is they don’t want to work with their father. I don’t teach them anything. They understand the language of the Mckinseys and the KPMGs better without realising that I implemented what these management companies are advocating today, several years back. So I let them train with them and hire those companies to work with my children,” adds Modi.

The reason why most patriarchs are demarcating territories very clearly and laying down a strategic roadmap for the future is because they don’t want history repeated. “The old Delhi families spent a lot of energy in in-fighting . Secondly, the old groups didn’t have any strategic vision. They didn’t enter the new sunrise sectors and missed the bus on several occasions. Post the opening up of the economy, these groups were unable to gear up and they didn’t possess the entrepreneurial energy that was needed to harvest those new opportunities ,” says Memani.

SRF’s Bharat Ram took his two sons to IMD in Laussane in 2003 to attend a course in managing family businesses, and was convinced that it was transparency and clear lines of communication that would prevent further splits. He soon constituted a family business council which comprised all members, including wives and children, who were not actively in business, and drafted a code of conduct that would act as the guide to resolve any issues that arise in the future.

At DSCL, the agri inputs-to power group and another DCM splinter, now controlled by Ajay Shriram and his brothers Vikram and Ajit Shriram, the same principles of family management are employed. “We witnessed how the 1990 split led to a rapid degeneration of all parts of the DCM group. Once a year, the entire family goes for a threeday retreat with a consultant on board to sort out differences of opinion if there are any. Nothing is pushed under the carpet,” says Ajay Shriram, chairman, DSCL.

For the Shrirams, the experience of separation was too traumatic and stressful to let it happen again. Ajay Shriram recollects that after the marathon meeting that decided the trifurcation of the DCM group, they came out of the room with shirts totally drenched in sweat and utter confusion about what the future held for them. “It was decided that our family would get the fertilizer, chemicals and a part of the textiles business. We did not have a clue about what these businesses were. In fact, we knew absolutely nothing about what happened at our chemicals complex at Kota, except for the fact that something very complex was made,” he says.

All the businesses the brothers inherited were riddled with losses, and the textile unit Swatantra Bharat Mills alone was losing nearly Rs 1.5 crore every month. The cash flows were so bad that their Kota plant had to be shut down for a couple of weeks because the brothers did not have enough money to buy raw materials for their flagship business. On another ocassion, they did not have the money to pay customs duty for a shipment of raw materials at the Mumbai port and the consignment was stranded in the port’s warehouse for so long that according to Shriram, the demurrage DSCL had to pay for it far exceeded the cost of materials.

“Once the textile division stopped bleeding , we were able to turn things around.” Today, the Rs 2,770 crore group with interests in rural retail, sugar, agri-inputs and power generation is one of the better performing among the DCM-fold and is rated highly by analysts for its sound and transparent management. Shriram says that DSCL turned the corner with a strong faith in the company’s core businesses and sticking to it even in times of adversity, without trying to diversify in desperation.

Sticking to the core, and resisting the Lorelei lure of various sunrise sectors has been the strategy of some of the other old Delhi based family businesses such as Escorts and Apollo Tyres as well. The Nandas of Escorts were spared succession squabbles and splits, but fell prey to diversifications which were often half-hearted and hamstrung by the group’s inability to pump in money to scale them up. Five years ago the Nandas decided to exit non-core businesses like telecom, healthcare, and IT and go back to the group’s core.

Apollo Tyres’ founder Raunaq Singh Kanwar, an entrepreneur from Lahore, entered the tyres business by happenstance. At the height of licence raj in 1978, he bought a licence to manufacture tyres from a family that was desperate to sell. At a time when the economic viability of a new business was not as important as getting the license for it, the Kanwar family decided to add Apollo tyres to their flagship company Bharat Steel Tubes.

Onkar Singh Kanwar was entrusted with the company that today by his own admission made terrible products and was besieged with labour problems. “When I took over Apollo Tyres, it was a sick company, with strong unions, a lousy product and a government that wanted to nationalise it,” he says. Kanwar turned it around by what he claims was the one of India Inc.’s first attempts at workplace diversity , thorough market research and effective government lobbying. He decided to revamp the middle management by hiring bright people from patently middle-class backgrounds and avoiding Bschool grads. “The sons of school teachers were more likely to value workplace stability and go along with my ideas. The IIM types wanted to sit on my chair in the second day of their job,” he says.

Today, The Rs 5,000 crore Apollo Tyres is the marketleader in most segments, and according to Kanwar, can become a big global force even in a commodity business. Last year, it acquired Dunlop’s operations in South Africa and the rights to use the brand across the continent in a $60 million deal. Neeraj Kanwar, vicechairman and MD, is actively scouting for global acquisitions, besides the upcoming greenfield plant in Hungary that is part of his plans to take the company’s sales to $2 billion by 2010.

Although Kanwar did dabble in a few new businesses like online lottery, UFO Moviez (run by his other son Raaja Kanwar ) that digitises movies to air-beam them straight to movie theatres via satellite, and hospitals, which seems to be his latest passion , Apollo has largely stuck to its core business without spending too much resources on the new ones.

The core-focus apart, it looks unlikely that Apollo would face succession blues unlike other Delhi counterparts with Onkar S Kanwar anointing his younger son Neeraj as the heir apparent. “Neeraj has shown leadership qualities and is leading from the front. The operational part is already with him, and I only look at the strategy and the new businesses.”

They are no longer the Sultans of Delhi, but the city’s old business families seem reconciled to a steady march as satraps in their core businesses.

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