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They're back

Two decades after testing Indian waters, the Hindujas are once again in investment mode in India. They’re planning to pump at least $50 billion into a number of sectors in the next five to seven years. That's not too little, but are they too late?
Brian Carvalho tells us the inside story.

Brian Carvalho        Print Edition: February 10, 2008

The Hinduja brothers: Srichand (seated); Gopichand(Left), Prakash(Right) & Ashok
The Hinduja brothers
In 1914 Parmanand Hinduja, a young Sindhi from a town called Shikarpur (now in Pakistan), started a trading business that brought him to Mumbai (then Bombay). Over the next few years he sailed between India and Iran, trading in assorted commodities. By 1919, Hinduja had set up office in Iran, and in the years ahead built a formidable business of merchant banking and trading.

Seven years from now, the Hinduja Group, which is run by Parmanand’s four sons—Srichand, Gopichand, Ashok and Prakash—will have completed a century. The group, which has estimated worldwide revenues of $10 billion, with some 35 per cent of those coming out of India, wants to usher in the 100th year in style.

“Our objective is to create a totally unique model in these seven years,” says Gopichand, the 67-year-old Co-Chairman of the group. That unique model calls for big investments in high-growth core sectors like oil & gas, power, infrastructure, realty, telecom and healthcare, most of which will be made in India.

  If all these projects pan out, the Hindujas would end up pumping over $50 billion into the country or even more (see The $50-billion Blueprint). “We would like to grow by investing up to $100 billion till 2014, with many more listed companies,” adds Gopichand.

Today, the group has six listed companies in India, with a total market value of roughly $4.3 billion at the time of writing. Revenues of the entire Indian operations (listed and unlisted) are estimated to be in the vicinity of $3.5 billion, with assets worth $8 billion on the ground.

These aren’t numbers that would set the Ganges on fire, what with a clutch of relative Johnnies-come-lately to the Indian stock exchanges boasting higher market capitalisations (Anil Aggarwal, Tulsi Tanti, K.P. Singh, Dilip Shanghvi, Sunil Bharti Mittal, Uday Kotak, to name a few). The Hindujas, for their part, have been investing in India since the mid-80s; but in fits and starts.

A few years after moving headquarters from Iran to Europe in the late ’70s, the brothers began their Indian odyssey by acquiring companies like commercial vehicle major Ashok Leyland Ltd (ALL), Gulf Oil and Indian Explosives. Towards the mid-90s, the group started a bank in India (IndusInd), which was followed by forays into media & entertainment and IT and IT-enabled services. None of these businesses is a leader in its respective sector.

The biggest, all, for instance, is a distant second to Tata Motors, and the bank isn’t in the top three amongst new private sector banks. The brothers point to the reasons for the sputtering nature of the group’s Indian operations. The country was on the brink of an economic crisis, and government policies weren’t industry-friendly. “India was not ready at that time,” avers Gopichand. Group Chairman Srichand brings up his pet peeve: The unaccounted-for economy. “Between 1995 and 2004, a lot of investors entered India, and many went back.

The $50-billion blueprint

Where the Hindujas hope to invest their money.

Telecom
Have applied for wireless licences in 13 circles; Keen on a pan-India footprint

3+
Oil & Gas
Will develop two oil fields in Iran
20*
Power & Infrastructure
A 1,200-MW thermal power project in Vizag; hope to complete it in 32 months (from April 2007)
 10

 Realty
Consolidated a 3,000-acre land bank; to develop property in the UAE; also launched real estate funds

 10
Auto
Looking at a bigbang acquisition of a commercial vehicle maker in Europe; JV with Nissan for LCVs
 3
Healthcare
Plan to set up a chain of hospitals, clinics, and ‘medicities’
 2
Ports
Will develop a port in Chabahar in Iran
 2
Others
Ventures in media, IT-enabled services
 2
 Total 52

* All figures mentioned above relate to estimated outlays in $billions

*Does not include proposed refinery in Kakinada and upstream/downstream projects in Mangalore

+Can go up to $10 billion if acquisitions have to be made; Investment figures are those earmarked for sectors as a whole, and not necessarily includes proposed individual projects mentioned Source: Group and industry

They didn’t realise that India has a parallel economy that’s not visible,” says the 72-year-old patriarch. Setting the brothers further back was the Bofors scandal in the late ’80s, when the Hindujas were accused of pocketing millions of dollars from the Swedish gun maker for apparently coercing then Prime Minister Rajiv Gandhi to do business with it. Those charges were finally thrown out a couple of years ago, but over 15 years of uncertainty would have taken their toll.

Today, the Hindujas finally appear keen and set to change the size and scale of their India operations, in dramatic fashion. Gopichand lets on about his keenness to acquire a big European commercial vehicle major in a potential multi-billion dollar transaction. This company could then be merged into ALL, making it a leading CV manufacturer on the global scale. “We are investors wherever we see opportunity. And money is not a problem for us.

Today, India is finally booming. Look at infrastructure— it will need a minimum of a trillion dollars. 15 years ago, I said we would need $150 billion (for infrastructure-creation), and people were laughing,” adds Srichand, sitting in the expansive fifth-floor office of the group’s modest office in central Mumbai.

Ready for India

With controversy behind them, and bright prospects and huge opportunity ahead, the brothers— all four of whom had got together in Mumbai last fortnight along with most of the next-gen for a family function— appear finally ready for India. And India for them. With plenty of help from the third generation—comprising Ajay, Sanjay, Dheeraj and Remi—and a clutch of newlyhired professionals like former ONGC head honcho Subir Raha, the group is attempting to make up for lost time with their sheer financial muscle. Not much is known about their wealth, but their proximity to people in power is one indicator of their power and might.

Queen Elizabeth, the Clintons, Albert II, Prince of Monaco and, at least, two former Indian Prime Ministers have come calling; the Democrats as well as Republicans are close to them in the US; and Labour has strong links with the brothers in the UK (“we are neither pro- or anti- any political party anywhere in the world,” says Srichand). They’re considered the second-richest Indian family in the UK after steel baron L.N. Mittal; and after throwing a party in St James’s Palace last Diwali, the Hindujas are set to do the same this year too—this time in the Buckingham Palace. “We don’t do business as just a deal; we strike relationships,” says Srichand. Adds 62-year-old Prakash Hinduja, Chairman (Europe): “We are an investor group. We always look for opportunities. We are ready to make any big acquisition or investment. There is no scarcity of money.”

They’re, of course, not telling how much they’ve got salted away—“honestly, even we don’t know what our revenues total up to,” grins Ashok Hinduja, the 57-year-old India Chairman—but the ticket size of their proposed investments is just one indicator of their money muscle. “The group has three very strong strengths. One is liquidity, another is our experience in all businesses, except alcohol, tobacco and meat, and the third one is to bring great investors along with us. Whether they’re investment companies or whether they’re kingdoms, they’d be happy to come with us because of the faith and confidence they have in us. These three strengths put together make every kind of deal possible for us. We are not dependent on banks,” says Srichand.

Sometimes banks too figure in the equation—like last year when the group threw its hat into the ring in the race for telecom major Hutch. The Hindujas made a gallant $20-billion bid for 100 per cent of Hutchinson Essar, and roped in Spanish bank Banco Santander to partfinance the transaction. Vodafone eventually bagged Hutch, but the bid was ample evidence of how badly the Hindujas wanted a piece of the big action in India; and how far they were willing to go to get it.

Sanjay, Dheeraj and Ajay Hinduja: With the help of the third generation and newly-hired professionals, the Hindujas are attempting to make up for lost time with their sheer financial muscle.
Sanjay, Dheeraj and Ajay Hinduja
Hutch may have got away, but that ambition to be a player in mobile telephony is still very much on. (The Hindujas were early birds in this business, having run the Gujarat circle in the mid-90s—that company was ultimately consolidated into Hutch; the Hindujas exited the business in 2006). Recently a group company applied for licences for 13 wireless circles. The goal is to eventually have a pan-India presence. If they do it the organic way, the brothers envisage an initial investment of $3 billion. But if an opportunity for an acquisition comes their way, the Hindujas are willing to bankroll it to the extent of $10 billion.

Indeed, the Hindujas talk in billions, and in dollars, without blinking or twitching too much. Consider, for instance, their plans to sink over $20 billion into the oil & gas sector. Half of that is slated to be deployed in the country where it all started (Iran), to develop two proven oilfields. But there are big-bang plans in India, both downstream and upstream. The Hindujas are keen to put up a 15-million tonne refinery in Kakinada at a cost of roughly $6 billion. Says Gopichand: “We were asked to bring an undisturbed supply of 30 years of heavy crude oil as feed for the refinery. We have tied that up, and submitted our letter to the Andhra Pradesh government, with ONGC as a partner or without it. It has been well-received, but between the Andhra government and ONGC, they have to decide on ONGC’s future plan of action. If they do go ahead, we will be their partner. But if ONGC doesn’t go ahead, we will do so alone.”

The family has also submitted a proposal for an integrated project in Mangalore, which will call for $15 billion upstream and downstream. This will include an LNG terminal, a power plant and a refinery. But as Gopichand points out: “This project is subject to us being able to bring LNG as feedstock. Without LNG, the project is not going to work.”

 The ones that got away

The Hindujas have had their share of setbacks.

Hutch
Plan: Made a $20-billion bid for Hutch; Roped in Spanish bank Banco Santander for financing
What happened: Vodafone walked away with Hutch

Air India
Plan: Buy the airline when it was put up for disinvestment
What happened: Was short-listed but eventually disqualified for not having a partner

Car project
Plan:
Wanted to get into car manufacturing
What happened: May be too late today, with so many players; will focus on commercial vehicles

These are big blueprints no doubt, but analysts wonder whether all these projects will actually come on stream. A few past experiences haven’t been encouraging. Consider, for instance, the much-delayed power project in Vizag, which was conceived way back in 1992. “Over the past nine months we have started the revival. Our proposal has been accepted, we are moving ahead, and I am hopeful that we should be able to complete the project in 32 months (from April 2007),” says Gopichand.

The Hindujas attribute the delays—not just at Vizag but in the entire power sector—to red tape. Identify land, get all clearances, give coal linkages, and create special purpose vehicles, urge the brothers. “Today, land acquisition, coal-linkages and environmental clearances are problem areas. Even today foreigners are not comfortable coming into the power sector,” says Gopichand.

Clearly, the infrastructure sector—which Srichand estimates will call for an investment of at least a trillion dollars—is where most of the Hinduja billions could go. Real estate is another flavour of the season, and the Hindujas don’t want to be left behind here. India Chairman Ashok reveals that the group has consolidated a 3,000-acre land bank, estimated to be worth around $7 billion at today’s prices. Some 500 acres have been cleared in Bangalore (near the new airport) and Hyderabad for development. The Hindujas will build residential complexes, IT parks, hotels, retail formats, hospitals and service apartments. Ashok also reveals plans to “consolidate assets outside India. In Dubai, on the waterfront, for instance, we have 2.4 million sq metres. We also have land in Qatar.” Along with the real estate funds it plans to launch, the Hindujas will be investing some $10 billion in the realty sector.

Meantime, former ONGC head honcho Subir Raha, who has been designated Executive Vice Chairman, Hinduja Group India, has been given a three-pronged mandate: Build existing businesses, look for new opportunities and—the most exciting—look for “over-thehorizon” opportunities, basically areas in which the Hindujas could enjoy a first-mover advantage. Raha will, of course, spearhead the oil & gas initiatives but what’s got him equally keyed up is the “tomorrow’s opportunity” of mining—not just of coal, but of minerals that are today considered unrecoverable. “Oil & gas is the glamorous part but there’s a lot more that’s below the ground,” says Raha. Investments here could go up to $1 billion.

Subir Raha, Executive Vice Chairman, Hinduja Group India: The former ONGC boss says oil & gas is the glamorous part. What hes keyed up about is mining of coal and minerals
Subir Raha
For the time being though, the Hindujas do appear to have their hands full with a diverse range of ventures. Abin K. Das, Director, Hinduja Group India, who headed Iranian operations between 1976 and 1985, is upbeat about developing a port in Chabahar in Iran, the closest point in that country to India. Prabal Banerji, Group CFO, Hinduja Group India, is keen to take as many businesses to the stock markets as possible. Two candidates: Real estate and the cable distribution business, where subscribers and revenues per user are being upped in a bid to boost valuations.

Sceptics wonder whether the group can actually get so much going at the same time. They point to the Hindujas’ much-touted car project, which may finally be dust-binned. Gopichand agrees that they’re late. Dheeraj Hinduja, 36, Co-Chairman, Ashok Leyand, points out that the group is no longer too keen to make passenger cars, although he doesn’t rule it out completely. “If we find an international company that’s keen to enter, we may consider partnering them,” he says. The focus for now, though, is firmly on commercial vehicles, with a joint venture with Nissan providing the group an entry into the light CV segment.

The best way for the Hindujas to convince their detractors would be to show some results. However, perceptions about the group’s shadowy machinations and past persist, and the Bofors connection still sticks like superglue. Also, unlike in the Tatas or the Birla conglomerates, the Hinduja companies appear scattered, with little sense of belonging to a family-run group. Forty-year-old Group President Ajay believes it is imperative to create a Hinduja umbrella brand so that people are aware that group companies do indeed belong to the group. By April, the brand is set for a makeover and a re-launch.

Forty-three-year-old Sanjay Hinduja, Group President & Chairman, Gulf Oil, says the perception of the group is like that of an elephant: Slow but strong. What’s also important from the group’s point of view is that it is still together after all these years, with the third generation preferring to stick together rather than go their own ways. That’s the only way Srichand knows. As he puts it: “The family comes first. Then comes economic growth (wherever we are investing). And the third is God… Nothing belongs to any family member. Everything belongs to everyone.”

 “Money is not a problem for us”

G.P. Hinduja
G.P. Hinduja
Amongst the four brothers, Srichand, Gopichand, Prakash and Ashok, the first two—Chairman & Co-Chairman, respectively—have the most to say. Excerpts from a free-wheeling conversation (except for numbers!) with the Hinduja brothers:

S.P. Hinduja
S.P. Hinduja
On India in the mid-80s, and now:

Srichand: Between 1985 and 1987, we acquired Ashok Leyland, Gulf, Indian Explosives… that was a time when few investors had confidence in India. But we knew that things would happen. And they happened from the ’90s. That’s how we got into banking.

Gopichand: But India was not ready at that time. It’s only now that we have begun focussing more actively on India. The reasons are very clear: GDP growth, growth in virtually every industrial sector.

Srichand: We have been analysing the global market. We have been investors. Wherever we are keen to invest, we analyse what’s going to happen—politically and economically. That’s how we analysed India, way back when the cold war was coming to an end… it’s not as if we dreamt something up, got up one fine day and said: ‘India is going to boom, let’s focus here.’ It’s been absolutely well thought out.

Between 1995 and 2004, a lot of investors entered India, and many went back. They didn’t realise that India has a parallel economy that’s not visible. Only accountable statistics were available. What about the unaccountable economy, which is much, much larger.

Today, India has great potential and opportunity. Look at infrastructure—it will need a minimum of a trillion dollars. 15 years ago, I said we would need $150 billion (for infrastructurecreation), and people were laughing. We are investors wherever we see opportunity. And we are a private company. We are still a joint family (spanning three generations), our investments have been diversified—for decades. Money is not a problem for us. And you saw that (when we bid $20 billion for Hutch). But we have always believed in one thing: The day we made our first investment in India, we were clear: We will never touch a familyowned group

Gopichand: We will not make hostile takeovers.

On the plans for India:

Gopichand: Our founder started the group in 1914. By 2014, we will complete 100 years. Our objective is to create a totally unique model in these seven years. We would like to grow by investing up to $100 billion till 2014, with many more listed companies

On the group’s culture and business model:

Gopichand: We are a private company (so we don’t disclose our balance sheet). Balance sheet kaun dikhati haijisko paise ki jaroorat hai (only those who need money show their balance sheet). The group has three very strong strengths. One is liquidity, another is our experience in all businesses, except alcohol, tobacco and meat, and the third one is to bring great investors along with us.

Whether they’re investment companies or whether they’re kingdoms, they’d be happy to come with us because of the faith and confidence they have in us. These three strengths put together makes every kind of deal possible for us. We are not dependent on banks.

Srichand: We are neither pro- or anti- any political party anywhere in the world.


Gopichand: If you know how to manage the environment you can grow much faster. But so far we have not practised this, and never will.

Srichand: First comes the family. Then comes economic growth (wherever we are investing). The third is God. Fortunately or unfortunately, in Sanskrit there is no word like religion. We do not follow any religion. We follow the five elements… Nothing belongs to any family member. Everything belongs to everyone. There is no partnership, no percentage.

On governments and growth:

Srichand: No government deserves credit for the success of the IT services industry. Or the $25-30 billion that is remitted into India annually—that is again thanks to the prosperity of the Indians abroad.

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