Gautam Thapar was called by his uncle, Lalit Mohan Thapar, in 1996 to try and resurrect Ballarpur Industries Ltd. It was the country’s largest producer of paper but in serious financial trouble. Profits had plummeted to Rs 3 crore and the possibility of a default to lenders loomed large. Thanks to easy money, the company had got in to all kinds of businesses and now didn’t know what to do. In the family separation that followed, Thapar also got control of Crompton Greaves as well as Greaves Cotton.
The problems there were similar. It was a tight situation and not everybody thought Thapar would succeed. Since then, Thapar has turned the businesses around and has grown into new fields like farm produce, power and information technology. The Avantha Group, as his companies are now collectively called, has manufacturing facilities spread through Asia, North America and Europe, and has annual revenues of $3 billion (almost Rs 15,000 crore). Thapar talks about his turnaround and growth strategy and how his role hasevolved since the turbulent days of 1996.
Over the past 13 years, the Avantha companies have changed so much that they have become unrecognisable from the past. Ours has been a distinct evolution — from solving the ailments of Crompton Greaves and Bilt in the initial period to consolidation of the companies later and, most recently, our move into the global arena with a local focus.
When we began the journey, we were a domestic market-oriented organisation operating in a protected market. We had legacy problems to solve and faced intense competition on home ground, even as we were defining a strategy for the challenges ahead. All the old constants and assumptions of the Thapar group no longer held at the time I took over.
Nowadays, we re-strategise for a constantly-changing environment, globally and in India, in each country or region. I feel this is Avantha’s key differentiator from other Indian businesses and the best assurance of success for all stakeholders, especially investors. And it is especially relevant given the sweeping changes taking place in the world outside India, which creates huge opportunities for Indian businesses and requires both strategic vision and hands-on ability to implement them. The turnarounds
My initial days with the group were spent in a Bilt office some 20 years ago. Later, when I took control, I realised that we didn’t have a global production scale. In 2001, I bought Sinar Mas to address this issue. A local subsidiary of Asia Paper and Pulp, the big Indonesia-based firm, this company had been largely responsible for crippling Bilt when it entered the Indian market in 1999. The move was a calculated and bold risk but it worked. It took us six months to turn around the operations, raising production from 85,000 tonnes to 125,000 tonnes.
While this solved our immediate problems of domestic scale, the hunt for raw material or pulp was still on. So we started looking abroad and settled on Malaysia’s largest forest company, Sabah Forest Industries which we bought in 2007. Sabah owns vast tracts of forest, guaranteeing us an excellent supply of pulp. We plan to build a global-scale paper plant near the forest land and then integrate the production and supply with our distribution network in India.
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Another issue that we faced was the lack of interest in Indian paper stocks. To address this problem, we created a structure where private equity investors could come in. They gave us a valuation of 13 times. Sabah and a part of the paper business were spun off into a new company, Bilt Paper Holdings, registered in The Netherlands. Bilt divested 20.5 per cent in this company for $175 million to private equity investors.
Bilt is today India’s leading paper manufacturer in volume as well as profitability. Its profit was to the tune of Rs 303.6 crore in 2007-08. (Results for 2007-08 are not yet out .) The company’s current expansion will bring it close to the one million tonne mark, which will be a major milestone for us.
Crompton Greaves, like Bilt, had been a blue chip company before I came on board. But the management had allowed it go to the brink of bankruptcy in the late-1990s. While it had been a good performer and a well-respected company, it had, by the time I joined, bottomed out and had rapidly-shrinking market share, margins and profits.
The first thing we did was put the house in order, starting from the top. We chose S M Trehan as the managing director. He was someone who had been with the company for over 20 years. He reduced the workforce from 10,800 to 5,300, cut back joint ventures from 18 to three today, sold the group’s telecom licence in the South and closed down businesses that weren’t turning in profits. He moved factories from high-cost Mumbai to Goa and Ahmednagar where the cost of production was cheaper.
Next, we started looking at foreign acquisitions to improve our access to customers and technology. We made our first purchase in 2004. That was Pauwels, a Belgian company which was suffering huge losses. We got Pauwels for ¤36 million. Its problem was poor management and operating performance, which we were able to turn around pretty quickly. Since then, we have bought Ganz in Eastern Europe, Microsol in Ireland, MSE Power Systems in the US and Sonamatra in France. These acquisitions gave us immediate access to markets and technology, and enabled us to offer a full range of products and services to customers worldwide.
Today, Crompton Greaves gets 48 per cent of its revenue from outside the country compared with none in 2005. Our goal is to build a global franchise that can compete with the best in the world. We are already the fifth-largest transformer manufacturer in the world but our ambition is to make it to the fourth or even third place. This may sound unimpressive but not when you consider that the top slots are held by large global companies like Areva and Siemens.
Loosening the reins
Now that we are on a steady keel with the group, I have been able to step back from day-to-day control to provide strategic vision and act as a guiding hand. I have always seen myself as an entrepreneur. I believe my skills are in being able to spot opportunities to create value and wealth, my risk-taking ability — commitment to these opportunities —, my ability to put together a management team that can execute them, while providing long-term group support.
In essence, I function as an allocator of capital and other resources within the framework of our business model which is to be financially innovative, yet conservative and low key. This is the same framework we use to develop our people. We will continue to diversify as opportunities present themselves. That is the entrepreneurial part!
In terms of the dynamics of the management structure, we have formed a four-member group management board headed by me and which includes the CEOs of Crompton Greaves and Bilt, Trehan and R R Vederah respectively, and our CFO, B Hariharan. In addition, the group has a five-member leadership support team which includes Bilt COO Yogesh Agarwal, human resources head Lav Shelat, Eric Van Zele, who heads group corporate relations in the US and Europe, Wilton Henriques, company secretary, legal counsel and top human resources hand at Crompton Greaves who is also president (governance, risk assurance, legal and secretarial) of Avantha, and Ash Gupta, president (group strategy and business planning).
We have changed the way we think and the way we do business from India-centric to global. We deliver value. Avantha is a global business and our aim is to adopt global category leadership strategically in all aspects. The business is well-managed and backed by well-managed operations and strong culture and boards.
Globalisation and slowdown
The larger canvas presented by domestic trade liberalisation and globalisation is a major change for Indian business. It poses a lot of questions: Will we adapt to the unprotected market? Will we survive the rough and tumble of the global market? We were there 200 years ago when India and China were the largest economies in the world, but history is no assurance of success. Not for a nation, not for a corporation.
Despite all the excitement in India, we barely account for two or three per cent of world trade. Additionally, we are a low-cost, low-price economy. Companies with goods, products and services that are geared towards delivering that value proposition in any segment of the economy will always be the strongest as they cater to the largest consuming base in the economy. The telecom sector offers some good examples. A willingness to adapt the business model to suit the economy is necessary for a business’ success. India’s role will continue to expand on the world stage as it becomes a larger part of the global economy.
I believe that the India growth story is still scripting itself. Foreign firms are still eager to enter the market and do business. Today, as a business, Avantha is more impacted by global events. When we went global, we chose to do so with a local focus. That is, we bought businesses that were close to the customer and where production was a competitive advantage. With the implosion of the global economy, even high-performing companies are not insulated from the effects of the current downturn. So how does any company achieve high performance in an era of heightened uncertainty?
We try hard to be forward-thinking and agile in this fast-changing world. “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” I like this wisdom.
Today, I tell myself: The genesis of Avantha is in the former Thapar Group which has over its 80-year history weathered many storms and emerged stronger every time. I am confident that we will repeat our proud legacy. Opportunities are a continuum and steering Avantha as a diversified transnational production, services and marketing organisation is what I am personally leading. Our new Avantha management structure is in place, my management board and the leadership support team are strategically and actively working with me.