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Challenges Shapoor Mistry faces being at the helm

Challenges Shapoor Mistry faces being at the helm

The new chairman of the $2.5 bn Shapoorji Pallonji Group has his hands full as his younger brother Cyrus prepares to take over from Ratan Tata in Dec. Over a century, the business interests of the group have expanded from construction to include real estate, infrastructure, consumer products and biofuels.

Shapoor Mistry Shapoor Mistry
He is often seen at Mumbai's Mahalaxmi Race Course, wearing a jacket, jeans and sunglasses, and mingling with fellow horse owners and jockeys. Weekends are reserved for the 170-km drive to his Pune stud farm. He does not tweet, and follows only two Twitter feeds: Dubai-based sports journalist Harry Tregoning and the Dubai Racing TV channel. It could hardly be clearer that Shapoor Mistry, the newly anointed Chairman of the $2.5-billion Shapoorji Pallonji Group, loves horse racing. And - according to his friends - cricket and Formula1.

He travels a lot, and it's more for family holidays than for work. One of his close friends said on condition of anonymity: "I have known him to enjoy holidays - often long ones - two or three times a year." The older of the two sons of construction tycoon Pallonji Mistry, 48-year-old Shapoor is generally conspicuous by his absence in chambers of commerce, and rarely speaks to the media.

His easy-going life was shaken up in November last year, when his brother Cyrus was named successor to Tata Group Chairman Ratan Tata. In June this year, the 83-year-old Pallonji Mistry passed the baton of the Shapoorji Pallonji Group to Shapoor. "His father will mentor him for the next two or three years," says a company insider.

Earlier, both Shapoor and Cyrus were managing directors of Shapoorji Pallonji & Company Ltd, the Group's flagship company. The company's entire management reported to Cyrus, including the heads of the legal, accounts and human resources functions. But now Cyrus is on a resignation spree. He has quit more than a dozen Group companies to avoid conflicts of interest after he takes over as Tata Group chairman at the end of this year.

Over a century, the business interests of the Shapoorji Pallonji Group, which built the palace of the Sultan of Oman in the 1970s, have expanded from construction to include real estate, infrastructure, consumer products such as water purifiers and textiles, and biofuels.

The Group started in 1865, when Shapoor's grandfather, Shapoorji Pallonji, set up a partnership with an Englishman, called Littlewoods Pallonji & Company (now Shapoorji Pallonji & Company Ltd). It built Mumbai landmarks such as the headquarters of the Reserve Bank of India and HSBC, and Central Railway's terminus at CST. The Group reported a $2.5 billion turnover for 2010/11. Its investments - including an 18.4 per cent stake in Tata Sons, the holding company of the Tata Group - total nearly $10 billion.

Shapoor managed the real estate vertical and two listed companies - Forbes & Company and Gokak Textiles - but now he also handles construction and infrastructure. His father had turned away from the real estate business in the early 1970s because of new building regulations and the high cash component in deals. Shapoor steered the Group back into the business in 1992, when liberalisation was taking off.

Cyrus, who entered the family business in 1991, three years after Shapoor, was instrumental in shaping its construction activities. He took them up the value chain from pure contracting, to engineering, procurement and construction. The Group took on complex projects such as the cable-stayed bridge on Goa's Mapusa river.

Construction and infrastructure are now the Group's mainstay, contributing over 60 per cent of turnover. A senior director of a Group company says: "Shapoor has to get into the skin of these new verticals very fast." Repeated attempts by Business Today to reach him over two months got no response.

Shapoor built up a pan-India real estate business with commercial and residential interests. In 2010, the Group built the 64-storey Imperial Tower, India's tallest residential building. Shapoor often points out that he bought no land in the boom of 2005-2007. The Group's ventures include a chain of IT parks and a 150-acre low-cost housing development in Kolkata.

The Group is perceived as being above board. Govind Bhagchandani, President of the Estate Agents Association of Pune, says: "The family is completely apolitical." Shapoor also took up additional responsibility a decade ago when the Group took over a listed entity, Forbes Gokak (now Forbes & Company) from the Tatas. In 2007, this company hived off its textile division to create a new company called Gokak Textiles Ltd, which eventually also got listed.

Forbes & Company's top line was Rs 1,769 crore and profits Rs 50 crore in 2011/12. Nideshna Naidu, analyst at research and consulting firm Frost & Sullivan, says that despite competition, Forbes & Company subsidiary Eureka Forbes has maintained its lead in categories such as water purifiers for over a decade.

"The future challenge is to penetrate deeper into price-sensitive small towns," she says. The company recently entered the packaged drinking water business, and markets solar products such as lamps.

Forbes & Company's stock rose more than 50 per cent to Rs 625 since last November's announcement that Cyrus would succeed Ratan Tata, on optimism about the family steering two big groups. The BSE Sensex rose 10 per cent in the same period. The other listed company, Gokak Textiles, plunged into losses in 2011/12 because of a fall in cotton and yarn prices. But Shapoor is excited about the hydro power technology the company has built over decades, as it meshes with the Group's renewable energy efforts.

"The company is in the process of divesting the hydro power business into a separate subsidiary," says a source in SBI Capital Markets, which values the hydro business at Rs 120 crore. This move could help the unit attract investment, and Gokak Textiles get back into the black. What is likely to take up most of Shapoor's time is the infrastructure business, housed in three companies: Afcons Infrastructure, Shapoorji Pallonji & Company, and Shapoorji Pallonji Infrastructure Capital Company Ltd (SP Infra).

The Group entered this business 12 years ago by buying Afcons. "It specialised in sectors such as marine engineering, roads and bridges," says K. Subrahmanian, Afcons Managing Director. Afcons fit well into the overall scheme of things as the Group flagship focused on commercial and industrial construction. The Group later floated SP Infra for owning assets such as toll roads, ports, mines, and power plants. "It's not easy to run a power plant or manage a toll road," says an analyst. "It's an altogether new business."

For over a century, the Group has not raised money from the capital market. The buzz is that Shapoor may take one of the infrastructure companies public to scale up. He is strengthening the Group's top decision-making body. In February, he hired BHEL veteran Umesh Narain Khanna to increase synergy. In April, Jai Mavani, formerly head of PwC's infrastructure and real estate vertical, joined as executive director.

"Shapoor is a boss with handson approach, and takes interest in the broader issues rather than the details," says a senior official of a Group company on condition of anonymity. Group businesses are headed by independent professionals. One of the listed companies recently conducted a leadership development exercise. "It will also be used for succession planning," says the official, and adds that it may be replicated in other Group companies.

"They give a free hand to professionals," says Paresh Rajde, founder of Suvidhaa Infoservice Pvt Ltd. Rajde, founder of SP Group lottery company Forbes Infotainment Limited (Rs 300 crore turnover), created and sold the Suvidhaa brand to the Group. Shapoor talked Rajde into staying back, which he did for another four years.

Many colleagues say the unassuming Shapoor often slips unnoticed into some of the humbler restaurants in South Mumbai's Colaba area.

But the easy-going chairman is now alone at the helm, and his agenda is full as the Group's 150th anniversary in 2015 draws near.

Published on: Sep 26, 2012, 12:00 AM IST
Posted by: Navneeta N, Sep 26, 2012, 12:00 AM IST