Manoj Gaur stakes claim for a seat at India Inc.'s high table
Suveen K. Sinha December 7, 2011Somewhere in the middle of his rapid reminiscences, Manoj Gaur takes a pause, and says: "We never forget where we come from." Nor would he let you forget that.
His speech is peppered with references to his father Jaiprakash - simply "Jaiprakash ji" - who started the infrastructure and cement group 53 years ago and, at 81, remains the Chairman. There are also frequent grateful nods to the frames of gods, who share the wall space in Gaur's office in Greater Noida, on the outskirts of Delhi, with photographs of large projects constructed by the group.
Two years ago, as Gaur was driving through Sarojini Nagar, the middle class shopper's paradise in central Delhi, this sense of where he comes from took over. He stopped at the Government Boys High School No. 1, where he studied until good marks in Class XII transported him to Birla Institute of Technology and Science in Pilani, and went to see the principal.
Ever the simple man - he wouldn't hesitate to fetch you a stool if you were wondering where to put your bag - Gaur politely asked if there was anything he could do for the school. The principal looked at Gaur indulgently and sent him away with a polite thank you.
"The principal had no idea who I was," says Gaur, 47, with a tinge of regret. As the Executive Chairman of Jaiprakash Associates Ltd, or JAL, Gaur presides over Jaypee Group, a bunch of companies which ended the last financial year with nearly Rs 17,000 crore in turnover and is on course to cross Rs 20,000 crore this year. That is more than Bajaj Auto's revenues of Rs 18,753 crore in 2010/11. "He did not think I was in a position to help," Gaur says of the principal.
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Jaypee is the country's third largest cement producer, the largest private sector company in hydropower with 1,700 MW, and has four thermal power plants totalling 5,120 MW slated to go on stream in the next three years. JAL, the group flagship, has an engineering and construction wing which accounted for 55 per cent of its last year's turnover of Rs 13,320 crore, but remains occupied mostly with in-house work. It also has the largest land bank in the National Capital Region. And yet, the school principal is part of a vast majority that would struggle to pick Gaur in an album of India's businessmen.
Rs 135,000 crore is what Jaypee hopes to earn from real estate related to Yamuna Expressway
That has begun to change. Many would now identify Jaypee as the one which made India's only Formula One track and hosted the first race so efficiently it washed away some of the stigma earned by Suresh Kalmadi and his merry men. You might argue that not many government school principals would have been in that melee of 95,000 people that thronged the Buddh International Circuit on October 30. True, but some of them may be tempted to take the Yamuna Expressway to Agra when it opens by the end of this year.
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The expressway, a 165-km elevated road that promises to halve the travel time from Delhi to Agra to two hours, has gobbled up Rs 11,228 crore. Jaypee will get to collect toll on it for 36 years and then hand it over to the state government for no charge. The real deal, however, is the five townships that it gets to develop alongside. The 450 million square feet under construction, untouched by the farmers' agitation against land acquisition in Greater Noida which hobbled hundreds of projects, is projected to be worth Rs 1.35 lakh crore over 20 years, while Jaypee will have rights on this land for 70 more years.
Rs 44,400 crore is Jaypee's consolidated debt, which gives it a delicate debtequity ratio of 3.5
The value would have been a fraction of this unless the expressway was constructed, which Jaypee has done a year ahead of schedule - unheard of in a country where infrastructure projects typically overshoot budgets and deadlines.
While the numbers will warm the hearts of a bean counter, the expressway promises to do what Formula One could accomplish only partially: make Jaypee a household name. At the same time, the conversations in those households may refer to the persistent buzz about Jaypee benefiting from a favourable political environment. Soon, however, they may turn to its strengths in execution.
His father's son
"I do not understand the fuss over Formula One. As a pure engineering effort, it was nothing in comparison to our other projects. Take Karcham Wangtoo, our hydropower project in Himachal. We drilled a 48-km tunnel inside a mountain there," says a woman executive of the group who does not want to be named lest the Formula One engineers should feel offended. Her colleagues reel off names of the group's marquee projects: Sardar Sarovar over the Narmada in Gujarat, the largest concrete dam in the country; Tehri over the Bhagirathi in Uttarakhand, the largest rockfill dam; Nathpa-Jhakri in Himachal Pradesh, the largest underground powerhouse; Indira-Sagar in Madhya Pradesh, the second-largest surface powerhouse.
The list goes on. "They are engineers and know execution. Construction is in their DNA," says Vinayak Chatterjee, Chairman, Feedback Infrastructure Services, an infrastructure services company.
Gaur, who was chosen to succeed his father in 2006 by a committee comprising five members of the promoter group but not the father, has built on the foundations. Since the change at the top, JAL's revenue has grown at a compound annual growth rate, or CAGR, of 32 per cent (see Up & Down). Says A.M. Naik, Chairman of Larsen & Toubro, the country's largest engineering and construction company in the private sector: "Manoj Gaur has grown out of the shadow of his father. There were many reservations when he took over but he has grown in stature."
Gaur, who as a child began to speak only when he turned four, now speaks in torrents, and is profuse in giving credit to his father. "If the opening batsman hits a double century and is still batting at the other end, it is easy for the one-down batsman to play his shots."
Gaur Senior, born into a Brahmin family in a village in Uttar Pradesh, went on to study civil engineering at the Thomason College of Civil Engineering, now the Indian Institute of Technology, Roorkee. After graduating, he joined the state irrigation department and spent the next seven years working on the Mata Tilla Dam in Jhansi. Then the entrepreneurial bug bit him. Using the nous picked up at Mata Tilla, he started out as a contractor in 1958, and bagged his first contract to build four bridges across a canal in Rajasthan. Some of the early partners failed to keep pace with Gaur's ambition and he made a second beginning in 1967/68, with his brother, brother-in-law, and close associates who remain with him till date, some in the second generation.
1,700 MW capacity makes Jaypee the largest private company in hydropower
"The way Gaur saab has managed the family and families of partners will one day be a case study at Harvard Business School," says Suren Jain, Managing Director, Jaiprakash Power Ventures. Jain speaks from experience. In 1986, when he was in Class X, his father Ajit Kumar, one of the partners since 1967, died. "It was an unlisted company then. Still, Gaur saab protected our shareholding. Fifteen days after my father's death, he came to my mother and made her tie a rakhi on him," says Jain, now 41.
The offices are a home away from home. There are 18 members of the extended family, including those of the partners, working in the group (see Thicker Than Blood). Together, they control 38 per cent equity in JAL, 76.5 per cent in Jaiprakash Power and 83 per cent in Jaypee Infratech. In 1982, when colour television came to India, Jaiprakash bought 18 of them. When there was enough money to buy houses and cars, they were given according to age. Jaiprakash and his family were not the first to get either.
Outside the group, too, Jaiprakash believed in relationships. He also believed in hydropower, in which the group enjoyed a natural advantage due to its expertise in engineering and construction, as these projects are invariably in difficult terrain, where water flows with force. Jaypee bagged its first independent hydropower project in 1992, but power-purchase agreements with state electricity boards, the bane of so many projects in the 1990s, proved elusive. To make matters worse, cement demand crashed. Jaiprakash met K.V. Kamath, who was heading ICICI Bank, and offered to sell him the cement and hotel businesses in lieu of money for hydropower. Kamath, who could not be reached for this story, decided to bet on Jaiprakash's passion; he let him keep both companies and funded hydropower.
Soon after, in year 2000, Kamath found himself stuck with a 450-acre real estate project in Greater Noida. It became a non-performing asset when Sterling Resorts, the developer, became sick. In came Jaypee and took charge of the project, now known as Jaypee Greens. Built around an 18-hole Greg Norman Signature golf course, it became successful and marked Jaypee's entry into real estate development.
The relationship management, say Jaypee's detractors, does not end with corporate ties, and that the group has taken rapid strides in the last few years mainly because of its proximity to Uttar Pradesh Chief Minister Mayawati. "I admire Manoj and the old man. But I cannot say much about how they have managed the environment and what they have done to manage it," says the head of a rival group.
On October 18, the Supreme Court sought explanations from the Mayawati government for granting tax exemptions to the Formula One event and later told Jaypee to hold 25 per cent of the ticket money in a separate account till the court decided on the validity of the exemption. There have been reports of a senior IAS officer, who criticised the urbanisation along the Yamuna Expressway, being suspended by the Mayawati government for going overseas without permission.
"Jaiprakash Associates is exposed to the risk of political upheaval or any exigencies in Uttar Pradesh," say Aashiesh Agarwaal and Adhidev Chattopadhyay of research house Edelweiss in a report of November 15 this year. On page 72 of this magazine, you will see our story, Five Elections and a Funeral, which talks about protests against the government related to Jaypee's power plant at Karchana in UP. With elections in the state due next year, will the dream run continue?
Beyond Uttar Pradesh
The dream run, says Manoj, has nothing to do with politics. "Our main activity in the state is real estate development, which is less than seven per cent of our total revenue. We have worked in 18 states and Bhutan. We went to Jammu & Kashmir in 1997, when the state was in the grip of terrorism. We are also in Arunachal. Yes, we have built the biggest expressway in UP, but that is the state where the project was conceptualised. We don't play golf, we don't own farmhouses, and we work six and a half days a week, yet people say we are successful because we are close to this or that."
36 mtpa capacity makes Jaypee the country's third-largest producer of cement
The expressway, incidentally, was first mooted and tendered under the Bharatiya Janata Party government led by Rajnath Singh and work on it started in 2006, when Mulayam Singh's Samajwadi Party was in power. It was under the Samajwadi rule that Jaypee acquired UP Cement Corp through a courtorganised auction. In terms of investment, the group's biggest bet is on Madhya Pradesh, where it will have sunk in Rs 20,000 crore by 2013 in various projects, including two thermal power plants, much more than the Rs 13,000 crore in UP.
So what is it that makes Jaypee tick? After some salutary nods to the gods Manoj gets back to his father. Gaur Senior always insisted on the top managers being posted at the project sites, wherever they might be. When he was starting the group's first cement plant in 1987, he stayed in a tent at the site in Naubasta, not at Rewa, the nearest semi-urban settlement which was 13 km away. Manoj joined the group in 1985 as a project coordinator at Naubasta, earning Rs 2,750 a month.
In many cases, the group first constructed roads to project sites because there was no other way to take the heavy machinery there. Each project has a hospital, which treats everyone free of charge, and a school, where poor students get education, books, uniform and mid-day meals - all for Rs 10 a month.
Manoj's own son, Manu Bhaskar, spent two years with Jaypee Nagar School in Rewa. When the group won a project in the Doda district of Kashmir, the first to be despatched there was Manoj's youngest brother, Sunny. In the home stretch of building the Buddh International Circuit, Jaiprakash went there every day. "In my memory, Jaiprakash ji took leave only once, in 1973. We were building the Salal Dam on river Chenab and he took us to Srinagar for three days," says Manoj.
He lists a number of projects - the Chamera dam in Himachal, Omkareshwar in Madhya Pradesh, Karcham in Himachal - which have been completed ahead of schedule. UP Cement Corporation, which has three plants in Naxalite-infested areas, was sick and its plants were shut when Jaypee acquired it in 2005. It has already restarted the plants, producing 2.5 million tonnes a year with 3,000 workers.
G.P. Goenka's Duncan group had a fertiliser plant in Kanpur. It is now being revived in collaboration with Jaypee. "I must say that Manoj has kept all his commitments, whether they were on paper or not. As far as the perception about his political connections is concerned, I have not seen that side of him," says Goenka, Chairman of the eponymous group. Little wonder then, that when the time came for Goenka to sell his Andhra Cements, he thought of Jaypee. The company, closed for 15 months, is slated to resume production early next year.
Then there is clear-headed pragmatism. For the Yamuna Expressway, the original estimated cost of acquiring the land was Rs 650 crore. It swelled to Rs 2,900 crore, doubling the debt portion to Rs 6,000 crore. That means Jaypee Infratech will take 10 years to repay its debt, instead of the seven envisaged earlier. The upside is that the expressway was completed ahead of time and returns from real estate, which became marketable earlier, will more than make up for it.
Still, it is causing some trouble for the group, as its consolidated debt has increased to Rs 44,400 crore, giving it a delicate debt to equity ratio of 3.5. The incessant rise in interest rates has not helped matters.
True, companies that execute large projects typically have a high debt burden. GMR Infrastructure, which built the new airport in Delhi, has a debt-equity ratio of 3, while for Hindustan Construction Company, which built the Bandra-Worli sea link in Mumbai, it is a precarious 6.2. "Our fortunes are linked to India's," says Manoj, adding that the downturn in the economy is bound to take its toll. Yet, Rs 44,400 crore is not something you can take in your stride. JAL's stock ended December 2, the day this article went to press, at Rs 67.30, against its 52-week high of Rs 116.80. "Increased capacity utilisation and subsequently increased contribution will help to lower the debt-equity ratio over the next two to three years," says a report of November 1 by Motilal Oswal. The brokerage house expects JAL's consolidated net debt-equity ratio to improve to 3 in two years.
"We will reduce the debt," says Manoj. To begin with, he will hive off 13 million tonnes a year of cement capacity, mainly in Gujarat and Andhra Pradesh, into a new company, in which he will do a partial divestment. "We are looking at both private equity and strategic sales, whichever makes more sense." At the going rate of $125 a tonne, the new company's total value works out to about Rs 8,150 crore.
Manoj is more than aware of the challenges, and is counting on his old allies of execution expertise and his father. "This takes some management expertise," he says with a wink and a smile. "All this has been possible also because of the goodwill Jaiprakash ji enjoys, in UP and elsewhere."
For now, the father has ordered everyone to move out of their houses in New Delhi's Vasant Vihar and start living in Greater Noida - close to their key projects.
Additional reporting by Suman Layak