 "A Vellayan")
For someone who prefers a low profile, it must have been quite unsettling to find himself in the news columns. On May 21, market watchdog Securities and Exchange Board of India (Sebi) charged A Vellayan, chairman of the Murugappa Group, with insider trading. A day later, the group announced that Vellayan would step aside from his post until the matter was resolved.
While Vellayan was unavailable for responses for this report, a company statement said that the step had been taken in keeping with family values and tradition. However, it added, "The link drawn in this interim order is not a conclusive finding. Vellayan is resolute in defending the serious harm to his reputation caused by this order and will take appropriate action as legally advised." The company said Sebi had "jumped to the conclusion", "based merely on suspicion", that Vellayan had passed on unpublished price-sensitive information about the acquisition of Sabero Organic Gujarat by Coromandel International, a group company, in 2011 that allowed some individuals to profit from trading in the Sabero stock.
Vellayan's business is a Rs 24,300-crore conglomerate that runs 28 businesses, including 10 listed companies, and employs over 32,000 people in India and abroad. Its roots go back to 1900 when A M Murugappa Chettiar set up money-lending and banking operations in Burma (now Myanmar), Malaysia, Sri Lanka, Indonesia and Vietnam. In the early 1930s, the family shifted back to India and established a sandpaper plant, a steel safe manufacturing company, an insurance company and a rubber plantation. The company also went into the abrasives business in partnership with Carborundum Inc of the US and Universal of the UK. In 1949, the group started Tube Investments India, which had a collaboration with Hercules, the British cycle maker, in India.
The three sons of the founder - AMM Murugappa Chettiar, AMM Vellayan Chettiar and AMM Arunachalam Chettiar - carried forward their father's vision and complemented each other in business. Two generations more of the family helmed the group, until it was decided in 1999 that professionals should manage the business units, with family members participating as board members. So, today, only two Chettiar scions - Vellayan and MM Murugappan - are on the Murugappa board. But this works, Vellayan said earlier, because bringing in professional managers is important for the company's growth.
The absence of family women in the corporate structure at Murugappa is noticeable. But being a conservative group, it believes it is better for the daughters to blend into the families they are marrying into. It is this orthodox streak that marks Vellayan. A 2013 report in The Economist said that unlike the decadent Indian business tycoons, the Murugappa leadership "doesn't do ostentation". The magazine quoted Vellayan as saying: "I wouldn't want to drive around in a Ferrari."
Ever since Vellayan took over as the chairman from his uncle, M A Alagappan, in 2009, he has gone about his business while keeping a low profile. Perhaps it is this eschewing of publicity that has imparted a sense of solidity to the company under Vellayan. A banker says that Murugappa is the darling of finance institutions because they believe their money is safe with the group. But Vellayan, while astute, is not emotionally attached to the group's businesses, proof of which came when having realised that Parry Confectionery, a high recall company brand, could never be as big as Cadbury's or Perfetti, he sold it to Lotte Confectionery of Korea, maker of the popular Lotte Chocopie.
Strategic decisions like this have marked the tenure of the 62-year-old son of M V Arunachalam. After schooling at Dehradun, he pursued a commerce degree in Delhi and then earned a diploma in industrial administration from the University of Aston and a master's degree in business studies from the University of Warwick Business School in the UK.
According to insiders, the media-shy Vellayan is approachable and takes care to ensure people feel comfortable in his presence. Yet behind his soft-spoken persona is a keen mind. When he wanted to acquire Godavari Fertilizers and Chemical in 2003, critics quailed at the price Murugappa was ready to pay. But Vellayan knew what he was doing, and was proved right when Godavari became a corporate success.
He has targeted growth that is "three times that of the country's GDP" for Murugappa. Accordingly, in recent years, while the economy grew at around 7 per cent per annum, the group has recorded growth of 25 per cent. When he took over as chairman, the group turnover was Rs 13,617; at the end of 2013-14, it stood at Rs 24,300 crore. However, the profit dropped from Rs 1,313 crore to Rs 957 crore in the same period.
Vellayan has tried new things to help business grow. For instance, he decided to set up hundreds of retail shops to sell agricultural goods to farmers and increased the number of outlets to sell bicycles. He also oversaw the revamp of the fertiliser division, creating national linkages for raw materials to make it the number two phosphate fertiliser manufacturer by volume in India. The agriculture and fertiliser businesses now account for half of Murugappa's profits. "The opportunity was there because I joined the group at a time when we were a relatively small player," Vellayan said in an earlier media interaction. "We had a good team, we were able to take the risks to grow in the sector and add value to the company."
Vellayan, who stays at Kottupuram, close to the Maldives Boat Club, considered to be one of Chennai's poshest localities, has two sons. Both of them are working for group companies, one at Cholamandalam General Insurance, the other at Coromandel International.
Sebi charges Vellayan with insider trading for having passed sensitive information on the acquisition of Sabero Organic Gujarat by the group four years ago to Gopalkrishanan C, V Karuppiah and A R Murugappan. Karuppiah is the son-in-law of Murugappan. Vellayan's grandfather is the brother of Murugappan's mother. Sebi has directed them to surrender "unlawful" gains along with interest, which it has calculated to be Rs 2.15 crore.
The stock market regulator points out that Gopalakrishnan had bought 319,500 shares of Sabero on May 23 and 24 in 2011 before the announcement of the unpublished price-sensitive information. After the information was publicised on May 31, Gopalakrishnan sold the shares between June 3 and 15, making gains of Rs 1.3 crore.
But M R Venkatesh, chartered accountant and economist, contends that "it is ironical Sebi is asking a person who runs a group whose turnover is in thousands of crores to explain a Rs 1-crore cheque. Even when they make political donations, the Murugappa executives make them through cheques. There is no cash business in the group."
Many who were contacted for this report say there has never been a corporate governance issue in the group. Even The Economist article of 2013 had acknowledged that the group "has a reputation for clean governance". "It is very difficult to connect the pieces in this puzzle," says a person who knows the family. A former employee points out, "The group could have grown much bigger had it had not followed rules and stuck to ethics." Another insider explains that though the chairman has the power to finalise business plans, major decisions are discussed among family members for concurrence. While it is unlikely they would leak information, he say, there could be at least half a dozen people who were privy to the knowledge about the Sabero transaction.
At the moment, that is all Vellayan has: the support of people who swear by Murugappa's track record in corporate governance. But since Sebi is unlikely to be swayed by them, Vellayan has no course other than to plead not guilty in the courts of law.
