 "Vellayan charts new course for Murugappa")
History, it seems, has come a full circle at the 116-year-old Murugappa Group under the leadership of A Vellayan.
After Vellayan's grandfather was shot dead 71 years ago in Myanmar (then Burma), where he had gone to take stock of his family's wealth, the group had pulled out of all overseas investments and put all its energy into India. Decades later, Vellayan, who took over as the group's chairman in August 2009, has got it to once again look for opportunities outside of the country and take calculated risks.
In the nearly seven years since Vellayan took charge, the group's annual turnover has almost doubled: from Rs 15,646 to Rs 29,470 crore during the year ended March 31, 2016.
The conservative Chennai-based group has opened its doors to joint ventures and is looking at inorganic growth. It has also diversified into areas unrelated to its existing business interests.
Some of the new businesses have outdone not only the industry's expectation but also the management's targets. One of them is its insurance venture, which is now valued at $1 billion and has posted growth of 46.37 per cent in profit-after-tax: Rs 1,878 crore in 2015-16 compared to Rs 1,283 crore during the previous year.
"Despite challenges, we have posted good growth in 2015-16," says Vellayan. "We expect the business to grow better during this fiscal year."
A bulk of the Murugappa family's wealth comes from automobile component and bicycle maker Tube Investments of India, sugar producer EID Parry and abrasives maker Carborundum Universal. Finance, general insurance, farm inputs, fertilisers, plantations, bio-products and nutraceuticals are its other interests: its 29 companies have manufacturing facilities spread across 13 states.
The group, says Vellayan, believes in a sustainable business model, which is why it has stayed away from sunrise sectors like power and infrastructure as well as modern trends like e-commerce.
"We don't want to get into any new trend, whether it is e-commerce or payments bank," he says. "If we borrow money (for these), we will also have to return it. And at no stage do we want to become a non-performing asset."
That is the reason why Murugappa Group's non-banking financial company, Cholamandalam Investment and Finance Company, has abandoned its plans to set up a payments bank.
"I reckon that only telecom companies or banks, who want to retain their customers or who have a large customer base, will go into this," says Vellayan. "We would have to burn a huge amount of capital even to stay in the business."
When the company was toying with the idea of setting up a payments bank, it expected to invest around Rs 100 crore in the business and make it sustainable in two to three years. But it later realised it would have to pump in far more to meet the losses for at least six or seven years "The whole scenario was different from the time we applied to when we got in-principle approval" says Murugappa Group Director (finance) N Srinivasan.
Growth in traditional & new sectors
Vellayan, who is also the president of Indian Sugar Mills Association, says the policy environment has improved with the Centre expediting subsidy disbursements and considering new initiatives such as direct payments to farmers rather than through fertiliser companies. Sugar price too has gone up from Rs 20 a kg to around Rs 34 a kg.
To cash in on the growth, Murugappa has in the last few years entered various auxiliary businesses. For example, along with its core fertiliser business (under Gromor Fertilisers), it has diversified into pesticides, organic specialty, nutraceuticals, soil testing, retail, crop insurance and mechanisation.
Today, retail alone clocks revenue of around Rs 1,500 crore. The company has 775 retail outlets under Gromor in Andhra Pradesh, Telangana and Karnataka and plans to open more at these locations and also enter Tamil Nadu a year from now.
"A few people have also approached us to be a correspondent for banks, which we are contemplating," says Vellayan.
Besides fertilisers, its subsidiary Coromandel entered into a tripartite joint venture alliance with Yanmar and Mitsui of Japan to manufacture and market farm machinery used in paddy cultivation. One machine, says Vellayan, can do the job of 31 workers in an acre. Its sales increased to 3,000 units last year from 1,200 units a year ago.
These adjacencies, says Vellayan, can grow to 30 per cent from the current 10 per cent in fertiliser alone.
Joint ventures and acquisitions
In the last few years, Murugappa Group has forged many new business relations. In insurance, it got into a joint venture with Tokyo-based Mitsui Sumitomo Insurance and for its NBFC arm it joined hands with Singapore-headquartered DBS bank.
Last year, the company sold 14 per cent of its shareholding in Cholamandalam MS General Insurance to Mitsui Sumitomo, consequent to which MSI increased its shareholding from 26 per cent to 40 per cent. The group earned a one-time income of Rs 883 crore from this stake sale, which valued the insurance firm at $1 billion.
Then, the group's water treatment engineering firm, Polutech, entered into a 51:49 JV with Japan's Organo Group, a leading player in water treatment engineering services.
Under Vellayan, Tube Investments of India formed a joint venture with Tsubamex of Japan to make sheet metal dies for the automotive industry and the white goods sector.
And, Carborundum Universal acquired Thukela Refractories Isithebe, one of the largest fused mineral manufacturing facilities in Africa, at an overall outlay of Rs 15 crore.
The group invested around Rs 850 crore in acquisitions alone in 2012-13. And, its companies also consolidated under Vellayan.
"Some areas in JVs where we had challenges were in South Africa and China," says Vellayan. "We had positive results in Russia because of local currency depreciation."
The challenges
In May last year, the Securities and Exchange Board of India (SEBI) had charged Vellayan with insider trading, following which he had stepped down as chairman. But a year later, it gave him interim relief and said it will re-investigate the case. Vellayan joined back as chairman.
Vellayan is known to be more aggressive than his predecessors in his approach towards business. And it has paid off for the Group. But he is now 63. The Murugappa corporate board rules state that the chairman cannot continue after 65.
Born on January 9, Vellayan will run the show for another year-and-a-half. Under him, the Murugappa group wants to grow three times faster than India's gross domestic product (GDP). But analysts say that's an ambitious target, since half of the group's revenues come from agri-based businesses, a sector that grows slower than the GDP.
Besides, many of the areas that it operates in - like sugar and fertilisers - depend on government policies and nature, both of which can be unpredictable.
For instance, the margins of Coromandel International, the market leader in single super phosphate, are under stress due to seasonal failure and industry inventory.
The law and prices governing sugar too keep changing. Last year, Axis Capital had, in fact, put EID "under review", given the lack of predictability in the sugar industry. But it later changed its stand, saying the tide was turning positive for the company and the sugar industry as a whole.
Vellayan, meanwhile, is optimistic. "I foresee achhe din (good days)," he says. "Earlier I used to get tired when I went to Delhi; now I feel enthusiastic."
After Vellayan's grandfather was shot dead 71 years ago in Myanmar (then Burma), where he had gone to take stock of his family's wealth, the group had pulled out of all overseas investments and put all its energy into India. Decades later, Vellayan, who took over as the group's chairman in August 2009, has got it to once again look for opportunities outside of the country and take calculated risks.
In the nearly seven years since Vellayan took charge, the group's annual turnover has almost doubled: from Rs 15,646 to Rs 29,470 crore during the year ended March 31, 2016.
The conservative Chennai-based group has opened its doors to joint ventures and is looking at inorganic growth. It has also diversified into areas unrelated to its existing business interests.
Some of the new businesses have outdone not only the industry's expectation but also the management's targets. One of them is its insurance venture, which is now valued at $1 billion and has posted growth of 46.37 per cent in profit-after-tax: Rs 1,878 crore in 2015-16 compared to Rs 1,283 crore during the previous year.
"Despite challenges, we have posted good growth in 2015-16," says Vellayan. "We expect the business to grow better during this fiscal year."
A bulk of the Murugappa family's wealth comes from automobile component and bicycle maker Tube Investments of India, sugar producer EID Parry and abrasives maker Carborundum Universal. Finance, general insurance, farm inputs, fertilisers, plantations, bio-products and nutraceuticals are its other interests: its 29 companies have manufacturing facilities spread across 13 states.
The group, says Vellayan, believes in a sustainable business model, which is why it has stayed away from sunrise sectors like power and infrastructure as well as modern trends like e-commerce.
"We don't want to get into any new trend, whether it is e-commerce or payments bank," he says. "If we borrow money (for these), we will also have to return it. And at no stage do we want to become a non-performing asset."
That is the reason why Murugappa Group's non-banking financial company, Cholamandalam Investment and Finance Company, has abandoned its plans to set up a payments bank.
"I reckon that only telecom companies or banks, who want to retain their customers or who have a large customer base, will go into this," says Vellayan. "We would have to burn a huge amount of capital even to stay in the business."
When the company was toying with the idea of setting up a payments bank, it expected to invest around Rs 100 crore in the business and make it sustainable in two to three years. But it later realised it would have to pump in far more to meet the losses for at least six or seven years "The whole scenario was different from the time we applied to when we got in-principle approval" says Murugappa Group Director (finance) N Srinivasan.
Growth in traditional & new sectors
Vellayan, who is also the president of Indian Sugar Mills Association, says the policy environment has improved with the Centre expediting subsidy disbursements and considering new initiatives such as direct payments to farmers rather than through fertiliser companies. Sugar price too has gone up from Rs 20 a kg to around Rs 34 a kg.
To cash in on the growth, Murugappa has in the last few years entered various auxiliary businesses. For example, along with its core fertiliser business (under Gromor Fertilisers), it has diversified into pesticides, organic specialty, nutraceuticals, soil testing, retail, crop insurance and mechanisation.
Today, retail alone clocks revenue of around Rs 1,500 crore. The company has 775 retail outlets under Gromor in Andhra Pradesh, Telangana and Karnataka and plans to open more at these locations and also enter Tamil Nadu a year from now.
"A few people have also approached us to be a correspondent for banks, which we are contemplating," says Vellayan.
Besides fertilisers, its subsidiary Coromandel entered into a tripartite joint venture alliance with Yanmar and Mitsui of Japan to manufacture and market farm machinery used in paddy cultivation. One machine, says Vellayan, can do the job of 31 workers in an acre. Its sales increased to 3,000 units last year from 1,200 units a year ago.
These adjacencies, says Vellayan, can grow to 30 per cent from the current 10 per cent in fertiliser alone.
Joint ventures and acquisitions
In the last few years, Murugappa Group has forged many new business relations. In insurance, it got into a joint venture with Tokyo-based Mitsui Sumitomo Insurance and for its NBFC arm it joined hands with Singapore-headquartered DBS bank.
Last year, the company sold 14 per cent of its shareholding in Cholamandalam MS General Insurance to Mitsui Sumitomo, consequent to which MSI increased its shareholding from 26 per cent to 40 per cent. The group earned a one-time income of Rs 883 crore from this stake sale, which valued the insurance firm at $1 billion.
Then, the group's water treatment engineering firm, Polutech, entered into a 51:49 JV with Japan's Organo Group, a leading player in water treatment engineering services.
Under Vellayan, Tube Investments of India formed a joint venture with Tsubamex of Japan to make sheet metal dies for the automotive industry and the white goods sector.
And, Carborundum Universal acquired Thukela Refractories Isithebe, one of the largest fused mineral manufacturing facilities in Africa, at an overall outlay of Rs 15 crore.
The group invested around Rs 850 crore in acquisitions alone in 2012-13. And, its companies also consolidated under Vellayan.
"Some areas in JVs where we had challenges were in South Africa and China," says Vellayan. "We had positive results in Russia because of local currency depreciation."
The challenges
In May last year, the Securities and Exchange Board of India (SEBI) had charged Vellayan with insider trading, following which he had stepped down as chairman. But a year later, it gave him interim relief and said it will re-investigate the case. Vellayan joined back as chairman.
Vellayan is known to be more aggressive than his predecessors in his approach towards business. And it has paid off for the Group. But he is now 63. The Murugappa corporate board rules state that the chairman cannot continue after 65.
Born on January 9, Vellayan will run the show for another year-and-a-half. Under him, the Murugappa group wants to grow three times faster than India's gross domestic product (GDP). But analysts say that's an ambitious target, since half of the group's revenues come from agri-based businesses, a sector that grows slower than the GDP.
Besides, many of the areas that it operates in - like sugar and fertilisers - depend on government policies and nature, both of which can be unpredictable.
For instance, the margins of Coromandel International, the market leader in single super phosphate, are under stress due to seasonal failure and industry inventory.
The law and prices governing sugar too keep changing. Last year, Axis Capital had, in fact, put EID "under review", given the lack of predictability in the sugar industry. But it later changed its stand, saying the tide was turning positive for the company and the sugar industry as a whole.
Vellayan, meanwhile, is optimistic. "I foresee achhe din (good days)," he says. "Earlier I used to get tired when I went to Delhi; now I feel enthusiastic."