Life After The Big Sellout

On April 23, when Bhai Analjit Singh put the final seal on one of the largest deals in corporate India, it was as if his prayers had been answered. By offloading his 41 per cent stake in Hutchison Max Telecom the Mumbai cellular licensee the man who close associates claim prays for two to three hours every day, will be Rs 563 crore richer. Today, everyones watching the youngest son of the 81-year old patriarch, Bhai Mohan Singh, as he decides his next move.

The company was running me, is what Singh reportedly tells associates. And now, determined to run the company his way, Singh has armed himself with a McKinsey & Co report on restructuring Max India.

But the going wont be that easy. Ask Ramesh Chauhan of Parle, R Kalyanaraman of GoodKnight, Parvez Damania of Damania Airways, C Siva Sankaran of Sterling Cellular, and more recently, Simone Tata of Lakme. Post liberalisation, these entrepreneurs and industrialists who once presided over powerful empires have sold-out to bigger and better companies. Their reasons for throwing in the towel may vary, but one factor unites them. They are no longer the power centres they used to be.

From being entrepreneurs of the highest class, they have now been relegated to the boardrooms of inconsequential startups, says a management consultant who specialises in mergers and acquisitions. Some might disagree, but most of these entrepreneurs are still struggling to make it big in their new businesses. Adds another consultant, For many, the diversifications havent really been strategic.

Market analysts say that forsaking their core competence has taken the wind out of their subsequent corporate dealings. Flush with funds, some of them have a finger in many pies.

Take one of Indias most flamboyant entrepreneurs 39-year-old Parvez Damania. There is a pall of gloom in his once buzzing office. Last fortnight, the Damania group relocated from its central Mumbai premises to a far flung suburb. Today, the companys 18-odd employees (down from 40 last year) are wondering whether the next months pay cheque will reach the bank. If their prayers are answered, next week their boss will hop into his favourite Jaguar, meet Subhash Gulati of UP Air and close a deal with him. It just might be the much longed for silver lining, says a company employee.

Ravaged by losses, the loquacious, Armani-clad Damania is fire-fighting to keep his group financially afloat. The man, who was the golden boy of Indian aviation four years ago , appears to have lost his Midas touch. When he launched Damania Airways in 1993, he gave the national carrier a few anxious moments. By offering four course meals and free liquor on even 25 minute flights, Damania introduced the Indian air traveller to unheard of luxuries. But the ground reality was slightly different.

With squeezed margins and the wrong kind of planes, Damania finally sold off his Rs 170 crore airline on May 16, 1995 to Chennai-based Khemka familys NEPC group. This sent group turnover nose-diving to Rs 70 crore. And all that Damania was left with were three listed companies Agritech Hatcheries & Foods (AHFL), Damania Pharma and Damania Capital Markets. He also had four privately held firms, which dabbled in agriculture, transportation and financial services.

Today, the groups flagship company AHFL, once one of the largest poultry farming units in India, is under liquidation. According to Nikhil Pandya, a close associate of Damania, AHFL came under pressure when disease struck and the poultry on the farm was wiped out. Even Damania Capital Markets (DMC), into the leasing and hire-purchase of machinery, which claims to have a Rs 50 crore net worth is stuck with non performing assets. Pandya, who heads DMC, says that they have outstandings of Rs 18 crore receivables. Then there is Damania Pharma which makes medicines for poultry and which has a turnover of Rs 2.5 crore.

Similarly, Damania Shipping which plied catamaran services on the Mumbai-Goa seas closed shop nearly 18 months ago.

Next week, Damania meets a UP-based entrepreneur Subhash Gulati to renegotiate the deal for UP Air, a north-based airline. Damania was the sole charter and marketing agents for UP Air which had two 52-seater Fokker aircrafts. The aircraft were grounded in March this year for technical reasons. Pandya says: We were making Rs 1.75 crore a month with just one aircraft for them and there is no reason why we shouldnt do well.

Corporate hassles notwithstanding, Damania has still had time to dabble in politics. He contested on a Shiv Sena ticket in the 1996 Lok Sabha elections. Despite the high media coverage, Damania lost. Every once in a while, his name crops up as the possible candidate to head the states carrier Span Airways.

If most of Damanias plans were grounded, Simone Tata, who introduced the Indian masses to coloured cosmetics, is all set to take off with her new venture. Tata who is flush with funds after selling the Tata groups 50 per cent stake in Lakme-Lever to Hindustan Lever (HLL) is gung-ho about her new projects.

Two years ago, Lakme entered into a 50:50 joint venture with HLL. For this transfer of its 50 per cent interest, Lakme received around Rs 126 crore. Early this year, HLL bought out Lakmes entire shareholding and the brands for roughly Rs 200 crore. The net cash inflow to Lakme is Rs 130 crore.

Today, Simone Tatas entry into retailing under Lakme Exports is looked upon with sceptimism. In March 1998, Lakme Exports bought over Littlewoods International (India) Ltd, a subsidiary of Littlewoods, UK at approximately Rs 6 crore. There are plans to move beyond Bangalore to other cities as well. With a store in Hyderabad by the end of the year, the company projects a turnover of Rs 100 crore by 2000.

Tata denies that this is an unrelated diversification. We have been looking for quite sometime at this kind of activity as a diversification. There is no connection whatsoever between this acquisition and the sale of the companys cosmetic business. Negotiations with Littlewoods started as early as April 1997, she says.

But retailing is a different ballgame altogether, argue company watchers. Tata is unfazed. The acquisition of the know-how and the established base will substantially reduce the gestation period and the ground work involved in any new start-up, she says.

A new start up venture is also something that B V Raju is interested in. Raju is richer by Rs 160 crore after reluctantly selling Raasi Cements to India Cements and is now eyeing the power sector. But unlike others in his fraternity who have exited from their core businesses, Raju is also talking about setting up a new cement plant in Anantapur with a capacity of 6 lakh tonnes per annum. Besides, he still runs Sri Vishnu Cements Ltd. Raju is also believed to hold vast real estate in Hyderabad and substantial equity in group companies Raasi Ceramics, Raasi Refractories, Raasi Leasings and Raasi Finance and Investments.

Today, B V Raju is a bitter man. The new takeover code does not give adequate protection to the technocrat promoter who cannot have a large stake in the company, he says.

Meanwhile Ramesh Chauhan, the feisty fighter who changed the rules of the Rs 2,000 crore soft drinks business, has mellowed. It was very unfortunate, but we couldnt have avoided it. Look at the difference in the size of the two companies. And we cannot even hope to match the investments they can put forward, he says on the sale of his cherished brands Thums Up, Limca, Citra, Gold Spot and Maaza to Coca-Cola in 1993. Coca-Cola India paid Chauhan $60 million upfront.

And what has he done with the $60 million? I am not particularly ambitious. I have already done a good job. Charitable work is of greater interest to me, he says. Chauhan has set up the Trust for Education and Research for ayurveda three years ago. He says he gives donations to institutes such as the Central Drug Research Institute in Lucknow and Voluntary Health Service in Chennai. Sources say that the grey-haired Chauhan is a typical Gujarati who leads a relatively frugal life. He has only one daughter who hell marry off. He doesnt have a son to think of. So, hes not losing any sleep over rebuilding an empire, says the source.

For the moment though, he is concentrating on one of his favourite brands, Bisleri. Chauhan had licensed Bisleri to Coca-Cola India and the five-year contract will end in October this year. He has decided not to renew his contract with Coke which gives the soft drinks giant the right to use the Bisleri brand name. Under the contract, Coca-Cola pays Chauhan a royalty in return for the use of the brand name.

Five years ago, the turnover from Bisleri was Rs 10 crore. Now it has gone up to Rs 40 crore and Chauhan wants to take it up to Rs 200 crore. Earlier, we didnt pay much attention to Bisleri. We have to put in a lot of money into bottle making and cap making. The advertising has to make an impact, he says. Meanwhile, the Chauhan brothers Ramesh and Prakash, who have sold off their two bottling plants in Delhi, are holding on to their Mumbai facilities. Ramesh Chauhan has rejected Coca-Cola Indias offer to become a joint venture partner in one of the two holding companies the multinational is setting up.

I will get into new business, he says without divulging details. But he is still cut up with the multinational onslaught. Earlier the government stops hankering for foreign direct investment, the better. No Indian entrepreneur should ask for a level playing field. We should ask for a playing field in our favour, he asserts.

Unlike Chauhan who is still toying with the idea of starting a new business, R Kalyanraman or GoodKnight Mohan as he is popularly known, plunged headlong into his pet projects. Before selling out his Rs 67 crore Transelektr Domestic Products to Godrej Soaps for a reported Rs 126 crore in 1994, Mohan set up his Shogun group.

Today, with a Rs 50 crore turnover, the group is into producing and distributing south Indian and Hindi films and television software. An electrical engineer from Kerala, he continues to market Snuggy diapers and baby wipes. Then there is the paper project which produces pulp board and duplex board. In Bangalore, Mohan has a project to make temperature coefficient (PTC) resistors for use in mosquito repellents, televisions, VCRs and hair dryers.

According to C Subramaniam, CFO, Shogun, only 10 per cent of the groups turnover comes from films. Last year, the company was in the news when Mira Nairs film Kama Sutra was delayed by the censors for over two years. The company is said to have lost around Rs 4 crore which they made up after the release.

Mohan might have covered the entire gamut from consumer products to films, but C Siva Sankarans operations are equally exciting. In the mid-eighties, Siva Sankarans company Sterling Computers flooded the market with computers priced at less than Rs 40,000. Siva Sankaran was able to cut prices because he sourced cheap CKDs from Taiwan.

In 1992, when the bidding for cellular licenses started, Siva Sankaran moved to Delhi and stayed at the Hilton for a year-and-a-half. He bid for the Delhi cellular license through Sterling Cellular and for circles in Uttar Pradesh (East), Rajasthan and Haryana through Aircell Digilink. Sterling Computers held 80 per cent stake in both the companies. Sterling Computers in turn was held by Siva Sankarans three investment companies Shanmuga Investments, Saravana Exports and Karthik Software.

He won the right to operate the Delhi license in late 1994 after two years of litigation. He promptly sold the licences to the Ruias of the Essar group for Rs 220 crore. Says an industry observer, Siva Sankaran does not execute projects. He only gets hold of them and makes a killing on their sale.

After selling out to the Ruias, Siva Sankaran moved to Singapore. Living out of an array of suites on the Presidential floor of the posh (the most expensive, says a cabbie) Ritz Carlton on the island, he once asked a visitor: How many times a year are you offered Dom Perignon? Ignoring the discomfort of the visitor of rather modest means, he continued: I have calculated; I am offered the champagne 280 times a year. He was alluding to the fact that money beyond a point doesnt mean anything.

Shuttling between San Jose, Singapore, Tokyo and Chennai, Siva as he is called by friends is currently drawing up ambitious plans to get into Direct-to-home broadcasting. He is working out a consortium and intends to get the DTH license once the government announces the bidding process. He will get the licence and eventually sell it. Thats the way he operates, says an analyst.

Siva, however, counters the view. He is building a cellular network in Tamil Nadu, which he insists he will own and operate. A sign of his deep pockets is a $15 million to $ 20 million equipment deal he has signed with Ericsson. For the first time in the country, Siva paid up the cash upfront. Who wants an expensive (suppliers) credit deal when I have the money.

Analjit Singh believes that cash in the bank will make all the difference for Max India: This transaction opens up a world of opportunity for Max. The Hutchinson-Max disinvestment will provide a large fund base for the company.

For a company with just Rs 9.88 crore equity, the deal means a huge cash inflow, raising the book value of the Max India share to Rs 689 in one stroke. This deal has created a buying frenzy, says equity analyst Umesh Kansal of DSK Securities. In just six trading sessions the Max India scrip shot up from Rs 206 to Rs 310.

Analjit Singh may be a star today. But market analysts believe that the aura wont last for long. He still controls his flagship company. But for most people whove sold, it is not all about manna from heaven. It is about the loss of celebrity status.