THE rise of Avantha
Group as one of the fastest growing business groups in the country belies
its legacy. Though the conglomerate was formally launched just a year
ago, its foundations were laid at the turn of the millennium. The Thapar
Group, which was one of the biggest business houses at the time of independence,
slipped away from public eye in the 1990s. But things changed dramatically
after Gautam Thapar, the grandson of group founder Karam Chand Thapar,
inherited a major share of the family empire from his uncle Lalit Thapar.
Three years ago, the group launched its go-global drive by acquiring
companies across sectors and continents. This is one of the main reasons
behind the group’s success. Its global foray is ironical as the
group patriarch, LM Thapar, vociferously opposed the liberalisation of
the economy. After turning around Ballarpur Inds (Bilt) — India’s
biggest paper manufacturer — and Crompton Greaves, Gautam Thapar
slowly built up scale in all the businesses, which now straddle across
pulp and paper, farm forestry, engineering, IT-ITeS, food processing,
chemicals and power.
The biggest change took place in 2005, when Crompton Greaves —
which was a debt-laden loss-making company only a few years ago —
made its first overseas acquisition. The e32-million (Rs 180-crore) buyout
of Belgian firm Pauwels opened up the way for future acquisitions in the
engineering space, and made Crompton Greaves the group’s flagship
company, overtaking Bilt. It also catapulted Crompton Greaves among the
top 10 global power transformer majors and set the base for it to become
the first group company to enter the billion-dollar revenue club.
The following year, the group went on a global acquisition drive. While
Crompton Greaves struck its second deal by acquiring Hungarian power equipment
maker Ganz, the Bangalore-based pickle making arm Global Green bought
Belgian food processing firm Intergarden. Avantha also signed the biggest
overseas acquisition deal in the paper space, when Bilt took over Malaysian
pulp and paper major Sabah Forest for $261 million. This was followed
by Crompton Greaves’ acquisition of Ireland-based Microsol in 2007
and that of French firm Sonomatra in June 2008. Global Green is close
to finalising its second deal by acquiring a Hungarian firm, which will
strengthen its position as one of the top pickle makers globally.
The underlying theme of these acquisitions was to lap up underperforming
or loss-making assets, which can add to the group’s global expansion
strategy. This strategy has not only added revenues, but also enhanced
the group’s global presence across markets, especially in Europe
and South-East Asia. Now the group has a presence across 10 countries.
The revenue of Avantha Group companies has grown from $1 billion five
years ago to $3 billion today. Though only a few of the group companies
are listed, together they are generating a net profit of around $200 million,
against $40 million in FY03.
Now, with multiple M&A deals under different group firms, most of
these companies are MNCs in their own right. However, multiple deals across
geographies have their own complexities. As Avantha Group Chairman Gautam
Thapar says, “Acquisitions are sexy to talk about, difficult to
see through and even more challenging to implement and integrate.”
He adds that besides striking deals, he has also opted to walk out from
some deals where valuations didn’t match up to the value of assets.
The chairman has been ably assisted by the top management of his flagship
group companies. He heads a four-member group management board, which
includes the CEOs of Crompton Greaves and Bilt, SM Trehan and RR Vederah,
respectively, besides the group CFO B Hariharan. This board also doubles
up as an in-house M&A group, though in future, a focused team may
be set up to advise on all deals for the group firms. A beginning has
already been made with the group hiring Ash Gupta, former head of Honeywell
India, as President, Group Strategy and Business Planning, who will hand-hold
some of the smaller group companies.
The group is now looking at scaling up businesses. These include negotiations
for partnering a foreign insurance firm in India; extending the chemicals
business to an ingredient supplier for pharma companies; besides venturing
into capital-intensive power. However, the group has to tread cautiously
after an indiscriminate diversification drive in the 1990s almost killed
the Thapar flagship Bilt. Says Mr Thapar, “Things have changed.
We were not very clear of what we wanted to achieve through some of the
diversifications back then. Besides, there were differences in opinion
within the management. Now there is a clear management vision.”
But the target of reaching a group turnover of $10 billion and an m-cap
of $25 billion by 2013 is a tough one. Mr Thapar agrees: “Different
group firms have their own challenges. For Crompton Greaves, it 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. However, in case of Bilt, the next step has to be big.”
But Avantha may still need a new pillar, which can become a big revenue
generator. If the group’s initiatives in the power sector take shape
as planned, it can fill that gap. Though it will essentially be a domestic
business, Avantha will look at acquiring coal mines in future.
The journey won’t be easy as risks increase. However, if some of
its group businesses match up to the efforts of other units, Avantha can
replicate its revenue growth over the past five years to once again treble
its size by 2013.