20 Special Feature Escorts/Shriram Group THE ECONOMIC TIMES | MUMBAI | THURSDAY | 23 MAY 2013 Re-engineering Escorts Faint stirrings of an unlikely turnaround are being felt in Escorts. Demonstrating a willingness to change, Nikhil Nanda has drafted in professionals to head each of its four businesses and is taking hard calls, report Chanchal Pal Chauhan & Satish John
HIS February, when owned licences to operate in Punjab, gets. Nanda’s style of managing, Sridhar Nikhil Nanda, joint man- UP (East), Rajasthan and Himachal says, is different from that of Rajiv Bajaj, Placing aging director of Escorts Pradesh, singed the group, which lacked his former boss. “He (Rajiv) plays hard. Professionals and the third-generation the alacrity and deep pockets to He is competition- and brand-centric scion from the HP Nanda/ match other telecom entrepreneurs. and will precisely differentiate and then at the Helm Raj Kapoor family, set out Telecom was divested later. So was attack competition,” says Sridhar, who In the last two years, Nanda has T to woo investors in a rare its crown jewel — Escorts Heart cherishes his decade-long association inducted experienced profes- conference call, he faced Institute and Research Centre, with Bajaj Auto and Rajiv Bajaj. sionals to head each of the four their concerns instead. Not even the with four specialty hospitals — By comparison, says Sridhar, Nanda businesses of Escorts: monthly despatch numbers of tractors in order to pay off creditors. is a “values-driven” guy. “As a boss, he and construction equipment are made As recently as last year, is only an enabler.” In his first meeting, S Sridhar public, investors rued of a company they a merger of three group Sridhar walked in expecting to be Head, Farm perceived as not being transparent. outfits earned the ire of grilled on industry issues, but was equipment business Investors have been pretty vocal in proxy-advisory firms, instead surprised by a barrage their displeasure over the way the who argued the move of questions that Nanda used to JOINED: October 2011 Nandas have run Escorts, the `4,000 hurt minority inves- understand him as a person. PAST: President crore tractor maker, with additional in- tors. Even as the group “He even recorded the inter- (Motorcycle business), terests in construction, railway equip- was coping with these view, wanting to reflect on it Bajaj Auto ment and automobile parts. Since 2003, challenges, rivals in later,” Sridhar recalls. Nanda, its market capitalisation has grown the tractors business who is married to Amitabh from `266 crore to `771 crore. In the made significant Bachchan’s daughter, Shweta, GVR Murthy same 10 years, the market cap of Eicher moves. TAFE gob- is patient to a fault and is Head, construction — a rival that sold its tractors business bled up Eicher’s trac- willing to learn from past equipment business to TAFE in February 2005 — grew from tor business in 2005 mistakes, adds Sridhar. JOINED: November `155 crore to `8,810 crore. And market and M&M acquired 2012 leader M&M saw its valuation increase Punjab Tractors in NOW, AN OFFENSIVE PAST: Former joint MD, almost five-fold to about `58,000 crore. March 2007, leaving Under Nanda, Escorts has Tractors India It’s been a forgettable 10 years for Escorts as the weaker been cutting flab: its white- Escorts, with failures in many unre- third player. Nanda collar head count is down lated diversifications eroding value. realises that. “Our to 1,250, from 1,577 in 2010-11. Dipankar Ghosh Nikhil Nanda, 39, who was appointed plate is full,” he This will be pared further to Head, railway products as JMD in September 2007, has been in says, adding the 900 by 2014-15, says a senior business charge of Escorts for the better part of group has since company official, not wanting this utterly forgettable decade. But now, eschewed the ag- to be named. Interest costs have JOINED: October 2012 the first faint stirrings of an unlikely gressive diver- been pared by 15% to `43 crore, PAST: An ex-Railways turnaround are being felt within the sification of the from `51 crore. Receivables offi cer, with work group. Three things are causing this. nineties. are down to 30 days, from 40 experience in John Its shaky days; their value is down by Deere and Bombardier THREE NEW MOVES financial posi- `80 crore from the last half. First, its net profit over the last four tion also limits “The focus is on cash, cash quarters has doubled to `103 crore, when possibilities. and cash,” Nanda says. He Lalit Kumar compared with the corresponding four “They (Escorts) explains how Escorts freed quarters of the previous year. are tight on up space in its Faridabad Pahwa Second, Nanda has personally wooed cash,” says a sen- headquarters by one-third, Head, auto products some top-class talent to helm several ior executive of and cut flab even while in- business strategic leadership roles in the group, a leading tractor creasing capacity. JOINED: May 2011 raising expectations that the new band maker, not wanting While these incremental PAST: Former MD of of empowered professionals may help to be identified. In gains are welcome, Escorts TAL Manufacturing stem the rot. “The first thing I did right the last five finan- needs to regain some of its lost Solutions Limited, a was to get the right people,” says Nanda. cial years (October to tractor market share before Tata group company In the last two years, Nanda has ap- September), Escorts analysts take the company pointed a professional to lead each of its net cash generation seriously again. In the last five four businesses. Leading this wave is has ranged between years, it has seen its share drop former Bajaj Auto executive S Sridhar, `111 crore and minus to 11.5%, from about 14.2%. “It is Challenges for who joined Escorts in October 2011 `100 crore. “They have not an industry where it is easy to head its farm-equipment business, to deal with the short term to gain market share,” says the Escorts which currently brings in 80% of the even as they have to find the executive from the rival tractor TRACTOR MARKET SHARE company’s revenues. Sridhar was part cash for the long term and free maker quoted earlier. Slipped from 14.2% to 11.5% in of the core team that worked with Rajiv cash flow. That begs the question Sridhar, the new head of the farm the last fi ve years. And unlike Bajaj to help Bajaj Auto get its mojo how are they going to fund their equipment business, is going back to the motorcycles, brand loyalty is back. GVR Murthy, former joint MD of expansion,” adds this executive. lessons he learnt from the Bajaj Auto tough to dislodge in tractors Tractors India, was hired in November revival and reapplying them at Escorts. 2012 to lead construction equipment, DIFFERENT STYLES Bajaj introduced Pulsar, a premium which contributes about 15% to the com- At a chance meeting with Anshu motorcycle, to fight established lead- NEW BUSINESSES pany’s overall revenues. Jain, co-chairman of Deutsche ers in the bike commuter segment and No deep pockets and tepid cash Two relatively smaller businesses too Bank AG, at a party in New Delhi followed it up with the Discover at the fl ows means growing other have new CEOs. Dipankar Ghosh, an earlier this year, Nikhil Nanda lower end to engage competition with a businesses will be a challenge ex-Railways officer, with experience earned a rare encouraging word. pincer attack strategy. in John Deere and Bombardier, joined “You’re in good businesses,” Jain is At Escorts, Sridhar is implementing CASH FLOWS (`CR) in October 2012 as CEO of the railway reported to have said when young a similar two-pronged strategy. In the products; and Lalit Kumar Pahwa, an Nanda introduced himself and his higher horsepower (premium) segment, 2011-12 -100.0 ex-Tata hand who now heads the auto businesses to the banker. the Farmtrac tractors will open up a 2010-11 111.2 products business came in May 2011. Nanda is slowly emerging as new market of 50-60 horsepower trac- 2009-10 -8.5 Third, Escorts is taking tentative steps the new face of hope for Escorts. He tors. In the lower, Powertrac segment, to re-engage with the analyst/investor credits his father Rajan Nanda, the the focus will be on fuel economy. 2008-09 57.2 community, and hopefully win them chairman, and his team as the catalyst With this, Escorts claims it has re- ARINDAM 2007-08 -30.0 back. Sample this, responding to inves- for the change that is taking place. tained pricing and on odd occasions in- tor criticism at a conference call, Nanda But people at Escorts credit the junior creased prices in a slowing market. “For Net change in cash and cash equivalents has since made sure despatch numbers Nanda and his willingness to delegate us, M&M and TAFE are not the competi- are made public monthly. “I look at my- responsibility to a new breed of profes- tion,” says Sridhar. “It is John Deere, an self more as a custodian,” says Nanda, sional managers. American maker of high-powered trac- One answer, Sridhar counters, could and quotes the two treatises of Jim In the Escorts culture, they say, tors. We will be focussing on premium be to venture out to East European Collins — ‘Good to Great’ and ‘Built to Nanda’s style is refreshingly different. tractors.” Counters the executive from countries, Southeast Asia and Africa. Last’ — as his gospel to re-build Escorts. He empowers people to take decisions the rival tractor maker: “Higher horse- But he is confident that a premium play There seems to be a “turnaround”, after building consensus on the tar- power tractors have not evolved a lot in in the domestic market will also click. acknowledges Arun Kejriwal, director India and that’s something they’ve to “Hopefully, we won’t take 10 years (as of KRIS, an investment advisory firm, keep in mind. It is not going to be easy in Bajaj did), but fewer, as we’ll avoid mis- who has tracked Escorts for a decade. Under Nanda, Escorts has been this country.” takes from experience,” he says. “Three “They have done quite a bit of downsiz- Escorts won’t have it easy since years from now, we’ll be playing only in ing and are trying to concentrate on a cutting ab. His big challenge will M&M and TAFE dominate the market, the premium segment and there is space core portfolio.” analysts say. “Where will growth come for every player to grow.” be to revive the tractors business, from,” asks KR Choksey, a veteran Nanda, his boss, is game for the race. OLD PROBLEMS stockbroker cum investor. “The market “We are already on the treadmill,” Nanda may have been at the helm for al- which brings in 80% of revenues, but is not growing and so how will Escorts he says, adding in jest that he lives in most six years now, but the roots of some grow?” Choksey, an Escorts sharehold- Escorts Faridabad HQ, returning to of Escorts’ biggest problems go back has lost market share from 14.2% to er, says talk of rapid expansion when the Delhi only to sleep. before his time. An unrelated diversifi- industry is slowing down is a difficult cation into telecom via Escotel, which 11.5% in the past ve years proposition. [email protected]
N May 10, when American private withal to manage risk attracted PEs to the nies, PE funds, partners or employees. His tion. “But it was not open to external constitu- equity fund TPG Capital scored group,” says PR Srinivasan, managing direc- entrepreneurial journey started with his chit ents, had zero research coverage and a board a seven-fold return in as many tor at Exponentia Capital, a PE fund. “Credit to fund business in 1973. filled with insiders. It could build a loan book years by exiting its investment PE investors who had the foresight.’’ Yet, even after five years and deposits of of `5,000 crore, 25 years since its inception.” Why PEs O in Shriram Transport Finance, Credit also goes to the man who has delivered `500 crore, the business did not do well. “The In May 1998, the Reserve Bank of India even it joined a growing line of PEs to such stellar growth: the loan book (loans dis- regulatory environment was strangulating warned customers against investing in the travel down this road. It worked like a math- bursed to customers) of Shriram Transport us and we realised it after getting into it,” says Shriram Group. “We opened all our offices ematical formula. Invest in a Shriram Group Finance has grown 50 times since 2002, from Thyagarajan. But the goodwill and customer for any customer to withdraw their deposits,” company, stay invested for five to seven years, `778 crore to `32,000 crore. “We were only friendships helped him when he entered the says Thyagarajan. “Everything settled in few Follow and make a bumper exit. half-convinced when we looked at the com- second-hand truck financing business, in 1979. days. However, the RBI is yet to give reasons Even in the past nine months, when PEs faced pany. Then, we realised it was built on strong This time, he turned to four friends for the warning.” some of the toughest conditions they have ever fundamentals,” says Ashish Dhawan, former for `5 lakh capital and partnered with According to Thyagarajan, the group was faced in India, funds have made four exits from chief executive of ChrysCapital, a PE fund. Ashok Leyland and Tata Motors. “I think unable to source cheap funding because of its Shriram companies, characterised by TPG’s “Thyagarajan’s unique leadership style of em- Thyagarajan invented the concept of bottom average credit rating. “We were not following Shriram 9.9% stake sale in India’s largest truck finan- powering his employees and common-sense of the pyramid before academicians,” says R a lot of parameters rating agencies required,” cier to Ajay Piramal for $304 million (`1,652 approach, rather than academic management Seshasayee, vice-chairman of Ashok Leyland, he says. Bhatia brought in Ranveer Dhawan, Even in most difficult year, PE crore). In the past 8 years, 16 PE funds invested style, accelerated the company’s growth.” India’s second largest truck maker. “We in- a former Citibank hand. ‘’Finally, after much $675 million in the Shriram group companies, ChrysCapital earned a 10-fold return in four vested in the company in the early stage fasci- improvement, we received a better rating, ` run by the affable, 76-year-old R Thyagarajan. years when it exited from Shriram City Union nated by his focus on the second-hand vehicle which we could use to negotiate with lenders funds booked 520 crore in The group is valued at about $1.07 billion Finance, a non-banking finance firm, in 2009. market and finding opportunities at the bot- and save interest costs.” (around `6,000 crore) at present. tom of the pyramid.” Breaking away from the tradition of Indian profits from exits in Shriram So far, 12 funds have booked profits of $403 POWER OF PARTNERSHIPS business families passing wealth to the next million, via 12 deals. Reason? “A huge market For Thyagarajan, partnerships have always MANTRA FOR SUCCESS generation, Thyagarajan has transferred all Group, reports Baiju Kalesh opportunity, hunger to grow and the where- been a vehicle for growth, be it with compa- Thyagarajan’s recipe for success is a mix of his ownership in its financial services busi- employee motivation, amicable relationship ness to the Shriram Ownership Trust. with partners and insulating the manage- Neither Thyagarajan nor his two sons own a PE Exits in Shriram Group since 2004 ment from his family. “The uniqueness of single share in the group, and are eligible for Thyagarajan is his courage to blaze a new a share of the trust only if the trustees agree. EXIT VIA M&As EXIT VIA PUBLIC MARKET SALE PE fi rm(s), Amount & Exit date trail,” says Seshasayee, who was on the board The trust owns 24% of Shriram Capital, the of Shriram Transport Finance in its early group’s holding company for financial serv- $30m stages. “He believed in internal entrepreneur- ices. As reward for their role in growing the ChrysCapital ship than internal controls.” company, senior employees — 37 at last count $ m Feb 2008 ChrysCapital 0.8 “RT (as Thyagarajan is affectionately called — have been given 1.5-2.5% each of the trust’s Oct 2007 $112.5m by his employees) always advised us to work ownership, which they can sell back when they ChrysCapital $22m Shriram May 2009 with an entrepreneurial spirit. This gives me leave or retire. ChrysCapital a feeling that I am the owner of the company,” “Capital is not important…people who Nov 2007 Transport Shriram $ m says Umesh Revankar, who joined Shriram worked and built the organisation are impor- Finance TPG Capital 307 EPC $ m Feb 2013 Transport Finance as an executive trainee tant,” says Thyagarajan who lives in a 1,300 sq Bessemer 15 way back in 1987 and rose up to become its ft house in Chennai and drives a Maruti Swift Dec 2007 ChrysCapital, $70m managing director. “I work more like a busi- owned by his wife or travels in a Santro for $4.2m ICICI Venture Sep 2012 nessman,” says Revankar, adding that he de- official purposes. He depended on talent from New Vernon clined job offers paying two to three times his smaller cities and towns to build his business. Dec 2009 present salary. Thyagarajan wants to leave his legacy to the Shriram $ m Shriram ChrysCapital 36 The spike for the group coincided with PE next generation of his employees. “They may Needle City Union Oct 2012 entering its picture in the early part of the cen- run the way we managed it,’’ he says. “Some $ m Bearing ICICI Venture 0.1 Finance tury. “Shriram Transport was a unique and will be desirable and some undesirable.’’ Feb 2010
ASHWANI NAGPAL ASHWANI ICICI Venture, $17m differentiated model,” Puneet Bhatia, manag- R Thyagarajan, Chairman, Shriram Group SOURCE : Venture Intelligence Norwest Apr 2013 ing director, TPG, told ET in an earlier interac- [email protected]