Shifting to a higher gear

At an age when most people are planning to retire, Jagdish ‘Maruti’ Khattar has turned entrepreneur. With Carnation, a network of multi-brand auto sales and service centres, on the road, the 66-year-old is raring to go, says Rakesh Rai.

     Print Edition: December 25, 2008

JAGDISH KHATTAR
JAGDISH KHATTAR, 66

EDUCATION: B.A.(Honours) Political Science, St. Stephen’s College, Delhi; LLB from Delhi University

AGE AT STARTING BUSINESS: 65 years

NO. OF YEARS AS AN ENTREPRENEUR: Less than a year

INITIAL INVESTMENT: Over Rs 108 crore

SOURCE OF FUNDING: Venture capital funds, personal savings and borrowings

COMPANY’S NAME: Carnation Auto
NO. OF EMPLOYEES: 35

AGE OF CONSENT: Being driven is an attribute that doesn’t necessarily come from being associated with a prolific car manufacturer. It’s inherent, independent of age and can manifest itself in any professional capacity.

Jagdish Khattar, 66, should know. He has exhibited this trait in a singular fashion as an additional secretary in the government of India, as the managing director of Maruti Suzuki India, and most recently, as an entrepreneur. The career transitions have been seamless, but the change from an employee to an employer stands out. This is because it took place last year, when Khattar was 65. It’s an age when most people are envisioning a sedantary retired life. But when Khattar quit Maruti in December 2007 after eight years of being at the helm, it was only to launch Carnation Auto—a network of multi-brand auto sales and service centres, a one-stop shop for all post-sale needs for cars.

“Age has nothing to do with taking up a challenge or doing what you believe in. I may have set up my own company at this stage, but even when I was a manager I always felt and worked like an entrepreneur. Everyone wants to be an entrepreneur, but only some have the confidence to go ahead and live that dream,” says Khattar.

PLANNING & RESEARCH: The confidence came from his stint with Maruti; the dream too took shape there. “In 2006, during my visits to dealers in Noida and Jalandhar, I saw the rush at service centres. I asked my team about the investment Maruti would need to build such centres in four years if it had to fulfil this demand,” says Khattar.

The answer—Rs 4,000-5,000 crore—set him thinking about the potential for such a service if it covered the entire car industry. After all, new car sales are projected to be 3 million and the car park to be 19 million-strong by 2015. To meet the needs of these customers, an incremental investment of Rs 12,000-15,000 crore in real estate would be required, as also a trained manpower pool. Besides, 60-70% of car owners leave the manufacturer’s network after the warranty period. Carnation intends to provide an alternative to these customers as well as to families owning multiple brands, fleet owners and corporates—all under one roof.

Khattar also found that, in India, 60 per cent of the auto service market is controlled by unorganised players. In developed markets like Germany, it is equally divided between the manufacturer, the unorganised players and independent chains. Khattar is set to establish the latter and says it is this market that they need to create and expand. The top two or three big players control almost 80% of the car market, which means that a dealer for one of these would have ready business within weeks of setting up a service centre. But what about dealers of 15-20 companies that control the remaining 20%? “The business has not been viable for most of them and many are sick. That is why, within months of announcing our venture, we have had 27 dealers of various manufacturers offering to shift their business to our company,” says Khattar.

THE PREPARATION: Khattar started work on the venture while he was with Maruti. In October 2006, he engaged AT Kearney to submit the first report and the business plan was delivered by it in September 2007. So, by the time he left Maruti, he had a workable plan to pitch to investors. He left his job on a Friday, by Monday he had set up his core team (none from Maruti), and within a week, the working plan and staff were ready. “It was important because I knew that if I waited for 10 months, the market would have forgotten Jagdish Khattar and I would have been like any other entrepreneur looking for funds. The timing matters a lot to leverage your skills, name and experience,” he says.

TIPS TO LAUNCH A SUCCESSFUL START-UP

• Enter the market only when you are fully prepared.

• Plan fast to leverage your name, skills and experience.

• Build a team that can give ideas to grow the business.

• Have the confidence to go ahead and live your dreams.

As for the seed capital, Khattar arranged it himself. “I sold both my properties in the National Capital Region and took a loan,” he says. The remaining Rs 108 crore came from the Azim Premji-promoted investment firm, PremjiInvest (Rs 80 crore), and IFCI (Rs 28 crore)—but Khattar still retains majority control. The company is also planning to leverage its orders for raw materials like oil, lubricants and paints to get large discounts, which will keep the costs low.

“I have managed to build a good team of 35 people from across the industry. A good team is crucial because it can come up with new ways to expand the business. Then the team leader doesn’t need to give all the ideas, and instead, becomes a facilitator,” says Khattar.

FUTURE STEERING: The first phase of Khattar’s ambitious project will involve a service and bodyshop network at 100 locations in 65 cities in the next five years. The company is looking at a capital expenditure of Rs 1,200-1,500 crore during this period. “By March 2009, we will have over a dozen auto hubs across the country,” he says. In the second phase, the company plans to take up multibrand sale of new and used cars. Besides, Khattar is in talks with Dilip Chhabria, car designer and promoter of DC Design, to offer India’s first organised car customisation studios.

Carnation is also forging partnerships with stakeholders, including insurance companies and real estate majors. Khattar proposes to make insurance companies their preferred workshop option in India. “Though, in the beginning, we will only look at the post-warranty service demand, but in future we intend to tie up with with them and work out motor insurance products that will include a maintenance contract for, say, three to five years. That will be incentive enough for new cars to come for post-sales service,” says Khattar. The company is also in discussion with local entrepreneurs in different states for joint ventures to supplement the network.

“A common complaint is the high cost of service and repairs. So we are working on low-cost solutions and technology to, say, help repair parts instead of replacing them,” says Khattar. What if manufacturers create roadblocks by not supplying enough spares? “My team has been travelling to Dubai, Bangkok and Taiwan, where the governments mandate the spares to be sold in open market. This is to make sure that we get original spares in India even if manufacturers do not cooperate,” he says. As for employees, Khattar is planning to invest in training institutes which will act as profit centres. The government has been enthusiastic as it will help create employment and impart skills at the lowest level. It may have been a late start for Khattar, but Carnation shows every sign of blossoming early.

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