Turnaround Strategy: DR Amit Rangnekar

Turnaround
Strategy
Dr Amit
Rangnekar
www.dramitrangneka
r.com
Case learnings
Despite a rich heritage the family owned but
professionally managed Thapar group teethered on
the brink due to internal squabbles and succession
issues
Old economy industry vagaries added to the misery
A nephew not destined to lead, stepped in, stuck
deals, cut costs, restructured, made strategic global
acquisitions, grabbed opportunities and turned
around the group
In the turnaround, what were the M&A motives, how
did they integrate, what are their plans and their key
concerns?
www.dramitrangnekar.com
Avantha Group
2008- $3.5b, Global footprint, operations in 10 countries

20,000 employees of 20 nationalities, 4,500 outside India
Diversified conglomerate, Global M&A
Crompton Greaves- Indias largest domestic power
equipment firm
Ballarpur Industries Limited (BILT), India's largest paper
player
Turnaround in under 10 years
Combined market cap- $100m (2001) to $2.5 billion (2008)
Net $40m (2003) to $200m (2008)
"From among all the enterprises trying to get from 'good to
great', we believe Avantha will be one that completes the
journey."
Business World, 2008.
New identity
2007- Avantha
Sanskrit- Avni "earth" + tha
from sthapna, "well grounded"
Indo-European- avancer, French
"to advance," + sthapna
We needed to cut the umbilical
cord" Thapar
Diversified conglomerate
Process
Engineeri
ng
Energy /
Infra
Agri
Services
Paper
(BILT)
Crompton
Greaves
BILT Power
Global
Green
BPO
(Salient)
Chemicals
(Solaris)
Pauwels
Ganz
Microsol
Biltech
Intergard
en
Key Financials
Avantha operations
Origins
Thapar Group (1919)- Karamchand Thapar, coal trader, Kolkata

Textiles- JCT Ltd and Paper- Ballarpur Industries
1960s- eldest son Inder Mohan not given to run empire
Second son, Brij Mohan- Gautams father- declined, lack of self
belief
Third son, Lalit Mohan Thapar (LMT), 33, became group head
LMT led from the 1960s consummately
Single, amiable charmer and a man-about-town, but feudal
1970s & 80s- Thapar group among Indias Top 10 B-families
LMT opposed to globalisation then
Nervous Nineties
1990s- Thapar Group lost eminence
Flagship Bilt in serious financial trouble
Asia Paper & Pulp, Indonesia, Indian entry sounded
death knell
JCT Electronics, Greaves Cotton struggling for
survival
Non-core diversification- media to prawns- dilution
Net- Rs 3cr, Debt- Rs 700cr
Vultures hovered to devour, if BIFR
Complex Structure
BILT stake- 1% in KCT, 34% in KCT(Coal), 12% in
Greaves
Subsidiary, Janpath Investments- 0.5% in KCT, 8%
in KCT(Coal), 6% in Greaves, 18% in APR, 19% in
English Indian Clays
Let 3 cousins chart own growth-paths, disentangle
complex holding structure
LMT- No interference with division of managers
among nephews
Succession
LMT took 4 years to select successor from nephews
Vikram, willed by LMT's father, Karam Chand Thapar, in
1962, to become group chairman by 1995, when LMT
turned 65
LMT close to Vikram (50) son of IMT
LMT stayed CMD, Vikram deputy MD
But LMT bequeathed share to Gautam
Gautam (38) (BMTs son), not in line to succeed, impressed
1999- Gautam appointed MD of BILT
Karan, 40- English Indian Clays and Bharat Starch
LMT retained managerial control of BILT
GT selected for business savvy , grit, determination to
prove himself
Vikram Thapar- Heir Apparent

Vikram shifted to Calcutta, led KCT (Coal Sales),
cash-rich subsidiary
1999- KCT & Bros (Coal) net Rs 112 cr on Rs 1,500
cr sales
Vikram also got the profitable Rs 719-cr Greaves
Greaves owns a 28% in Crompton Greaves
KCT presence in unrelated areas
Needed Rs 500 cr to finance KCT's 2 mining JVs to
supply 3-5m tonnes coal to thermal power plants
'The cousins approach to Greaves was
professional, they never interfered in the company
management.'' Shekhar Datta, Greaves' CEO for
the last 11 years
Gautam Thapar (GT)
Gautam- Chemical Engg, Pratt Inst, NY

Grudgingly returned, not on speaking terms with LMT
Hated Thapar HQ, in New Delhi
Early 1990s Reluctant GT joined Bilt
Put in charge of AP Rayons, fought satraps, turned around
1994 Turned around Bilt chemicals, sick textile unit, built
exports
Bilt Finance head, GT scrapped expansion, VT-GT wars
escalated
Bilt Paper division (90% sales, 80% profits) under VT
"We had no clear strategy either as a company or group, yet
we were committing huge capital to various projects" Gautam
1999, GT Bilt MD, profits increased
1999- 4-way division of family's assets
GT era
LMT said, "Do what you have to do, I stand by you"
Gautam wielded a giant axe, resuscitated family businesses
Sold non-core /loss-making businesses, cleaned balance
sheets
Cancelled expansion, laid off staff , squeezed costs
Sold 1/3rd family holdings to raise capital
19% stake for $45m- NaCom Bank Saudi Arabia (bought back)
"We had to do drastic things as our cash flow was declining
fast. If Ballarpur sank, the entire group would have sunk with
it
GT took on satraps and cousins
"Every business clan has politics, but only those who deliver,
win
Series of global M&A- to access RM, expand MS, widen range
GT era
Breathed new life into
beleaguered companies
Leadership is about desire for
power, and power cannot be
granted. It has to be taken
GT rebuilt the reputation of a
family-run business. His
perseverance to ensure that
what he thinks or plans,
happens, is remarkable.
Dalmia Cements MD, Puneet
Dalmia
Divestments
BILT's non core buisness

Glass, edible oils, leather
Non-ferrous ingots and castings divisions
BILT's 63% stake in glass containers company, JG
Malaysia
BILT's, 14% in Phoenix Pulp & Paper, Thailand
Crompton Greaves (CG)
1878- R.E.B.Crompton & Company, UK- Electricity

1927- M&A FA Parkinson- Crompton Parkinson Ltd (CPL)
1937- CPL India, Mumbai- Greaves Cotton concessionaire
Synonymous with electricity
1947- M&A- Lala Karamchand Thapar
Till 1990s- booming
1990s- Strong management structure but on BIFR brink
Rapidly shrinking market share, margins and profits
Settled into a complacent groove, costs spiraling out of
control
Axe effect
2000- CG loss $35m (Rs 147cr) to 2003- wiped out all
losses
2000- GT handpicked SM Trehan, 36 year CG veteran
1st part was to put our own house in order, starting from
top. It was cut, cut, cut, for 3 years Trehan
Transformed Crompton Greaves from laggard to global
player
Slashed workforce from 10,800 to 5,300, Pared JVs from
18 to 3
Sold groups telecom license in South, closed unviable biz
Shifted factories from high-cost Mumbai to Goa &
Ahmednagar
CG M&A motives
2005- CG debt-laden loss-making company
2005: M&A- Pauwels, Belgium, $36m (Rs 180cr)transformer makers, chronic losses
Pauwels issues- mismanagement, turned around
in record time
Motive- to establish customer relationships
Plants in Ireland, US and Canada, base in Belgium
Made CG group's flagship company, overtaking Bilt
CG among top 10 global power transformer majors
CG M&A motives
2006- M&A- Ganz Transelektro (Hungary)- transformer
makers
Motive- establish foothold in fast growing East European
market
2007- M&A Microsol (Ireland) power substation firm
Motive- technology. As leading substation automation
player
2008- M&A Sonomatra (France) 1.30m, services
capabilities
Motive- benefit from company's customer base
2 more M&A lined up in distribution systems business
4 overseas M&A in 4 years
All EU subsidiaries became vehicles to tap business
inEU/US
CG turnaround
2008- Rs 7,000cr revenues, power-equipment
manufacturer
2008- CG growing @ robust 25%
CG replaced Bilt as Avanthas flagship
CG businesses- 3 segments: consumer products,
power & industrial systems
Portfolio- transformers to electric fans- entire
power generation and distribution chain
Customers global, 48% revenue from outside
India, 2005- nil
CG Challenges
Integrating EU & Indian operations
Overseas M&A- gaining employee acceptance, changing
mindset
Belgians uncomfortable working under Indian parentage
US culture more open, far easier to integrate
Solution is communication
Indian cultural traits- polite and open to new cultures and
ideas- help acceptance
Paucity of leadership who can deliver, irrespective of
geographies
Consumer biz- fans, appliances, lighting & power
transformers
CG strategy
Realistic- M&A smaller firms- technology and add
$200m revenues
Scale up organically- generate consumer product
revenues $1b
Expand within, solutions in power & industrial
automation
Position CG as a global cutting-edge technology
company
Industrial automation- weak spot in CG portfolio
50% revenues from overseas markets, 0 to 120
patents in L3Y
Consolidate and grow EU/US businesses, enter other
EMs
CG competition
Armed with high-end technology
Fighting chance against MNCs- ABB, Siemens,
Areva in EU/US
Equipment replacement by aging utilities fueling
demand
CG > ABB in India, but lag in margins
India energy-starved, potential power equipment
market $44b over N5Y (Lehman Bros)
Why global perspective
Overseas M&A opportunity bigger than India

Domestic market growing rapidly, but India- 2.5% of global
CG India- 25% share & leadership, insignificant globally
1% of remaining 97% global share >>> 25% Indian share
But highest operating margins in India, as costs lower
Better bargaining power with customers in India
Labour costs 6% of sales in India, 30% in EU/US
But in Indian prices are 15-20% of EU/US
No point going West to sell cheaper transformers. Rather
build name through good, competent manufacturing
technology & build reputation through higher technology
and services.
For many years, CG exports more profitable than
domestic sales
Why global focus

India- competitive for manufacturing CG product mix
Customers- EU/US- Power/Energy utilities- prefer local
source
'Made in India' still considered inferior to EU/US makes
Physical market presence needed for customer
acceptance
Most products custom-designed for client specific
manufacture
Constant client interface, life-time maintenance and
assurance
Local firms suited, utilities prefer to deal with familiar
firms
Client relationship most important
Power generation
Ambitious but logical business
Investing $1.5b in building 2power plants of 1,200
MW each
BILT Power and Infrastructure
Diversification- Global Green, packaged food firm,
M&A
Solaris Chemtech, chemicals- pharma API, EU
foray
Indian paper industry

India- fastest-growing paper market @ 8% in the world @
2%
Consumption 8.3mtpa, staid unglamorous business, low
margin
No interest in stocks of paper companies in India, No
analyst
India, not the best place to make paper, lack of RM
critical factor
Economic growth and a print media boom
Domestic production lags demand @3% growth
Many small paper mills in India, profitable, but margins
low wrt China
BILT
Leadership across six decades and three generations
1945- Ballarpur Paper & Straw Board Mills, Chandrapur Dist,
MS
1988- Entry into industrial paper segment
BILT's bottomline & morale suffered as 2 JMDs jostled for 10
years
1990, 92- M&A- Sewa Paper Mills, Choudwar unit
1996- BILT's net Rs 107cr to Rs 3cr in 1998
GT focus- only on writing, printing & industrial papers- 79%
market
2001- M&A- Sinar Mas Pulp &Paper (India)
2002- New Corporate Identity initiative- BILT
Bilts vintage plants
Sinar Mas M&A

1995- Temporary shortages propped prices, host of new entrants
1995- Sinar Mas (Indonesia) India entry, threat to dominance
1L m-tpa factory, 30% of Bilt capacity, focus high-end coated
paper
1996- prices crashed as new suppliers emerged, market glut
Bilts margins crippled, plunged into deep crisis
But Sinar Mas parent Asia Pulp & Paper, filed for bankruptcy
2001- GT M&A Sinar Mas India $114m (Rs 450 cr)
Local operations were breaking even, but production was low. In
6 months we raising production from 85,000 to 125,000 tonnes &
turned around operations R Vederah MD BILT (earlier Sinar Mas)
Achieved domestic scale, but shortage of pulp remained
M&A- Sabah Forest Industry

2007- M&A SFI Malaysia- $260m (Rs 1100cr)
Costly but strategically brilliant
Indian law prohibits papermakers from setting up
captive wood plantations, so they opt for costly imports
or persuade Indian farmers to grow trees for pulp on
their marginal landholdings."
SFI owns vast forest tracts, massive RM pulp supply
assured
Adds 150,000 mtpa paper capacity, 120,000 mtpa pulp
capacity
Valuable 99-year concession of 289,000 hectares of
forestland
4x area of Singapore
Strategic options
Pulp mills located near forests [Malaysia]

Paper mills located close to market [India]
Fully integrated player
Access to low-cost pulp, insulates Bilt from vagaries of
wood prices
How to effectively & economical supply chain to fuel
plants?
We are still working on our strategy for using the resource
base in Malaysia. We can build a global-scale paper plant
near the forest land, and then integrate the production or
supply with our distribution network in India.
Easier said than done
BILT turnaround
L4Y- BILT's paper-making capacity expanded- 2.62L to
4.85L tpa
Rs 170cr- Ramp up existing machines speed, called
running re-build
Double capacities of printing, writing & industrial
kraft paper
Used most cost-effective options
Foreign Alliances- speciality test-liner papers
(corrugated boxes)- margins 30%
Bilt emerged profitable in 3 years
Bilt turnaround earned Thapar credibility & bank
support
Financial restructuring
Created a structure for PE investors to step in
Valuation 11.5 times
SFI + part of paper business= BILT Paper Holdings
(BPH)
Registered in the Netherlands
BILT divested 20.5% of BPH for $175m to PE investors
Flip side of this financial re-engineering is when a
listed entity does a subsidiary and creates two sets of
investors in the same business, it can lead to
challenges in managing the transfer pricing or costing
inter-company. R Bhasin, Baring PE India
BILT To Last?
Scale up in India, ramp up capacities in Malaysia

Bigger M&A deals in Asia, Africa or Latin America
Supply-chain issues
Cultural integration of overseas & Indian
operations
Malaysia-No afternoon meetings, prayers
Diversify into retail and branded paper products
Set up stationery stores across India, brand
Matrix
Retail stores 1,000- 3,000 sqft
CG pipped BILT
Bilt, traditional flagship
But M&A helped CG pip Bilt
CG deals acquired technologies, and even small size
generated substantial revenues
Large engineering companies globally- $100b+ revenues
Biggest paper firms (US/EU)- only$50-60b revenues
CGs success- fired up Bilt management- healthy
competition
Bilt M&A- Sabah Forest (Malaysia)- Groups biggest M&A
Bilt performing well, doubled capacity to 1 m metric,
targeting $1b revenue by 2009
Other companies
Avantha Power & Infrastructure-- can propel group to $10b
(2013)
License for 2 x 600 MW generation projects
Bidding for coal blocks in future
Solaris Chemtech- Rs 400cr Bromine-related business, not taken
off
Enter specialty chemicals, pharma API
Global Green, pickle making arm- among world's largest players
2006- M&A Intergarden (Belgium) food processing firm
Global Green acquiring Hungarian firm
Biltech Building Elements
Salient Business Solutions
IT and BPO, small presence, but segment traction, can scale up
M&A
M&A lapped up underperforming / loss-making assets
globally fitting group's global expansion strategy
Turned around, added revenues, enhanced global
presence
Each company now an MNCs
Multiple deal complexities
"Acquisitions are sexy to talk about, difficult to see
through and even more challenging to implement and
integrate. Over the past couple of years, we have done
6 deals and are close to finalising another one at our
food processing subsidiary, Global Green. One big
learning is that it's important to walk out of deals and
I'm glad we did that in a few cases last year, when the
valuations were sky-high.
Failures
Gautam stalled Rs 1,200cr for 1.6L tpa industrial
paper plant in Choudwar (Orissa)
Invested in non-paper capacities- disasters
Bricks- 12 months, Rs 30 cr, but took 36 months,
Rs 135 cr
Edible oils- unprofitable, sold off in 1996
Nylon 6,6 project with Du Pont- non-starter (Non
radial tyres)
CG Challenges
How well can it structurally integrate global- sales, marketing &
distribution-disparate entities- sustain growth?
Pull off power investment?
CG as a reputable global brand?
"For CG the challenge is 'what next'? It can look to acquire very
big engineering firms, but they are not up for sale or will be very
pricey. So, it may continue to acquire small and mid-sized firms,
which will bring in new technologies for the company.
CGs healthy order book (Rs 3kcr over N18m), impacted by subprime crisis. Pauwels, Ganz and Microsol, face risks from US
housing crisis. Housing investment slowdown affected transformer
distribution business, similar situation in EU Lehman Bros
Who survived?
Bilt- Challenges
Sync front- and back-end operations, cultural
integration?
Bilt- transporting pulp to Indian plants cheaply &
efficiently ?
Key risk to BILTs business is RM availability (wood)
till government allows industry to set up plantations.
Perennial wood & pulp shortage has ensured Indian
paper firms have no global scale. Escalation in
energy (coal) costs, could impact margins. Project
execution delay may impact future estimates, import
duty reduction may not augur well. Edelweiss
Future
Group target 2013- Sales $10b, Mcap $25b

Only few group companies listed
Scale up businesses
Power initiatives could fill the gap, M&A coal mines
"Things have changed. We were not very clear what we wanted
to achieve through diversifications. Besides, there were
differences in opinion then, now there is a clear management
vision.
Overseas M&A spree to access technology, markets & products
Challenge- integrate overseas & Indian operations, gel cultures
Companies go global for technology, markets or raw material.
GT has done all three. Now, will he be able to overcome the
challenges? Kumra, Mckinsey
Learnings
Success notwithstanding, Thapar abhors status
quo
Urges CEOs to "tear up the rule book and throw it
out.
CG power distribution thrust area
Aggressive M&A, good at integration
Overcoming production mind-set, Bilt visible in
retail market
"We're not in the press every day; we like to just
get on with our work"
GT
Age 47
Married, 4 children
Aggressive, pushy & flamboyant
39% stake + private holdings
Networth: $1.8 billion
BoD- Bata India
Avid golfer
Founder/director- Osian's,
Indias 1st art auction house.
Amassing a second billion, isn't what drives me.

Rather, it's "taking risks and doing everything
possible to make them work. Someday, I'd like to
take a flight to the moon!

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Turnaround

2008- $3.5b, Global footprint, operations in 10 countries

Thapar Group (1919)- Karamchand Thapar, coal trader, Kolkata

Vikram Thapar- Heir Apparent

Gautam Thapar (GT)

Gautam- Chemical Engg, Pratt Inst, NY

BILT's non core buisness

Crompton Greaves (CG)

1878- R.E.B.Crompton & Company, UK- Electricity

Why global perspective

Overseas M&A opportunity bigger than India

Why global focus

Indian paper industry

Bilts vintage plants

Sinar Mas M&A

M&A- Sabah Forest Industry

Pulp mills located near forests [Malaysia]

Scale up in India, ramp up capacities in Malaysia

Group target 2013- Sales $10b, Mcap $25b

Amassing a second billion, isn't what drives me.

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