Indian entrepreneurs Hall of fame Aniruddha Dange, CFA Head of India Research [email protected] (91) 2256505060 Anshu Govil (91) 2256505059 February 2006 India Strategy Our Indian entrepreneurs Anand Mahindra Anil Agarwal Dhirubbhai Ambani Dilip Shanghvi Ekta Kapoor Gautam Thapar Jignesh Shah Kiran Mazumdar Shaw Kishore Biyani NR Narayana Murthy Raghav Bahl Rajiv Bajaj Rajiv Mody Sanjay Labroo Sanjiv Bajaj Tulsi Tanti Vijay Mallya Banking on people Going beyond numbers www.clsa.com Find CLSA research on Bloomberg (CLSA <go>), firstcall.com, multex.com, and use our powerful CLSA evalu@tor® database at clsa.com Indian entrepreneurs Contents Foreword.............................................................................................3 Banking on people ................................................................................5 Dhirubhai Ambani, Reliance group......................................................... 11 NR Narayana Murthy, Infosys ............................................................... 15 Anand Mahindra, M&M......................................................................... 23 Anil Agarwal, Vedanta Resources........................................................... 29 Dilip Shanghvi, Sun Pharma ................................................................. 35 Ekta Kapoor, Balaji Telefilms................................................................. 43 Gautam Thapar, BILT and Crompton Greaves .......................................... 49 Jignesh Shah, Financial Technologies ..................................................... 57 See the inside back Kiran Mazumdar Shaw, Biocon.............................................................. 65 cover for a key to our corporate kaleidoscope Kishore Biyani, Pantaloon..................................................................... 73 Raghav Bahl, TV18 ............................................................................. 81 Rajiv Bajaj, Bajaj Auto......................................................................... 89 Rajiv Mody, Sasken Communications ..................................................... 97 Sanjay Labroo, Asahi India Glass ........................................................ 103 Sanjiv Bajaj, Bajaj Auto..................................................................... 111 Tulsi Tanti, Suzlon Energy .................................................................. 119 Vijay Mallya, UB Group ...................................................................... 129 Appendix 1 ...................................................................................... 134 Appendix 2 ...................................................................................... 136 Appendix 3 ...................................................................................... 137 More head to head interviews with India’s captains of industry – CLSA’s annual company Q&A 2 [email protected] February 2006 Indian entrepreneurs Foreword The world’s stock market history is replete with examples of how investing, either big or small, in individuals - call them entrepreneurs or entrepreneurial managers - can result in big pay offs. These individuals dared to dream and had the vision, foresight and untiring energy to pursue their dreams. They had the conviction to listen to their gut instincts and were fearless in taking risks, which, in some cases, were unfathomable at the outset. They opened up and created new lines of businesses and built previously non-existent size and scale. If you did invest with Dhirubhai Ambani or Narayana Murthy, you would have partaken in the staggering fortunes they helped create. India is rich in India, fortunately, is blessed with an abundance of such entrepreneurs. In this entrepreneurs nucleus lies India’s most powerful, as yet unquantifiable driving force for change and growth. India’s entrepreneurial DNA, so to speak, that was hostage to too many controls and shackled till the early 1990s is gradually being freed. I have great confidence that India will produce many more Ambani’s and Murthy’s in the years to come, and, in the process, throw up many new and exciting money-making opportunities for the investment community. The difficulty, though, is to know which way to invest when there is such a limited amount of information or lack of clarity on how such dreams can become real. To invest in Infosys or Microsoft when they started off would have required a huge leap of faith, quite possibly a bet on the dreams and execution capability of an unknown individual. Stick with your conviction Obviously investment decisions that back such individual entrepreneurs require deep understanding of the persona. This is a subjective game and hence more art than science. It is also easier said than done. Even after one develops conviction, it will be periodically put to the test. While each individual case may be different, and therefore one should not underestimate the need for constant review, the biggest pay-offs happen when investors stick to their conviction, even through trying times. Dhirubhai’s aim to build global scale in refining and petrochemical facilities was often taken incredulously. Yet, he managed to build the single-largest grassroots refinery in the world. The turnaround in the fortunes of ICICI Bank is the result of one man’s dream, that of KV Kamath, who managed to turn the bank around from an NPL-burdened term lending institution to India’s fastest growing and largest bank by market capitalisation. Personas matter In this report we outline our understanding of the persona of a few entrepreneurs, some of whom have just emerged on the scene. Aniruddha Dange, our Head of India Research, spent several days studying companies, short-listing the entrepreneurs and spending hours interviewing them. Quite a few appeared almost rebellious in their early days and laced with unconventional thinking, were full of dreams and a willingness to take risks, but are great team builders. Anand Mahindra, for example, pursued a Master’s degree in film study at Harvard and believes being ‘right-brained’ helps him remain creative. The story of how he picked up the design of Scorpio (a highly successful auto model) in a flash is a case in point. On how he transformed Bajaj Auto, Rajiv Bajaj says that all he did was to move one big group (of non performers) from getting in the way of a small group of performers. Anil Agarwal, who is now among India’s leading non-ferrous metal producers, says the company’s mantra is to become the lowest cost producer in the world. “Ultimately, everyone in the world is going to die, but February 2006 [email protected] 3 Indian entrepreneurs we must die last,” he says. He created a very unique corporate structure, by which a company listed in the UK owns assets in India, enabling it to drive better valuations for all his businesses. There are after all no boundaries for an enlightened mind. Entrepreneurs can now Indian entrepreneurs today have access to abundant capital. They are access abundant capital confident in competing in the global market place and are looking to buy and build businesses outside India’s borders. Secular growth in the momentum of domestic consumption, driven by some powerful factors like favourable demographics and rising affordability, is also throwing open a very large, fast- growing market. All of this is driving entrepreneurs to think of scale, ”make Coke instead of Clarets and Nike instead of handmade shoes.” The pursuit of size and scale has led them to test various price points (US 2 cents a minute for mobile calls!) in different industries. Sunil Mittal, an underdog not long ago, fought all odds to build a pan-India telecom company, whose market value today is in excess of US$15bn. Bharti’s success is yet another example of focus, foresight and perseverance. Can India create a GE, a Can India create a GE, a Microsoft or a Toyota? Even five years ago the Microsoft or a Toyota? answer would have been an emphatic no. The answer today is more likely to be ‘possibly.’ Entrepreneurship in India in the past five decades, especially prior to the late-1990s, never realised full potential, either due to too many government controls, lack of capital or the sheer mindset of entrepreneurs and their belief in management and control through legacy. In addition, too much stress on frugality also created its own problems, as it limited needs and therefore the hunger to grow bigger. The lifestyle and aspirations of the younger breed of entrepreneurs are different, and their yearning for super- luxuries will no doubt drive them harder. Investors have had a Private equity investors in India have already had a real taste of success and real taste of success most of their investments on entrepreneurs, especially those at an early stage, have paid off big. Warburg Pincus’ US$300m investment in Bharti fetched over US$2bn in around five years. Of course, there is much more support required from the government to give this dream a chance to be realised. Significantly better infrastructure, much less bureaucracy, a more simplified tax structure and an easier environment for capital flow would all be required to see this happen. Help and support from the government would possibly help Indian entrepreneurs to elevate their companies to the next big league, akin to what some of the north Asian governments have done. Before I conclude, I must reiterate that the list of entrepreneurs detailed in this report is illustrative, so as to give you a flavour