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For
a man whose business moves have repeatedly made the headlines in
the 2000s, Grandhi Mallikarjuna Rao has managed to stay out of the
news. And so, while the eponymous business house he heads sold a
brewery to UB in 2001, its majority stake in Vysya Bank to a subsidiary
of ING in 2003, and helped rehabilitate, albeit temporarily, Phaneesh
Murthy, the former high-profile head of sales of Infosys Technologies,
Rao himself has remained in the background. For the record, the
53-year-old has stayed there 27 years.
The 2000s have not been just about divestments
for GMR; the group has quietly established itself as, arguably,
India's most successful infrastructure company. Today, it boasts
two profitable power plants, a third is in the works, as are two
stretches of national highways and the new international airport
coming up at Hyderabad. "We believe GMR has built an excellent
business in the energy sector," says Luis Miranda, President
and CEO, IDFC Asset Management Company, which recently acquired
a 15 per cent stake in GMR Energy, the holding company for the power
projects, for Rs 100 crore. "Before it was fashionable to focus
on infrastructure, the group had already stated its commitment to
the sector." Only, not too many people have taken note of this.
Enquiries about Rao and his group draw little response from corporate
circles, barring some faint buzz about the man's closeness to Andhra
Pradesh Chief Minister Chandrababu Naidu.
| THE GMR GROUP: A SNAPSHOT |
FOUNDED BY:
Grandhi Mallikarjuna Rao, 53
INTERESTS: Power, roads,
airports, sugar, ferroalloys, jute
TURNOVER: Rs 1,500 crore
REVENUE BREAKUP: power
(420 MW): Rs 1,140 crore; sugar: Rs 200 crore; ferroalloys:
Rs 100 crore; jute: Rs 53 crore
GROUP NET PROFITS: Rs 150
crore
IN THE WORKS: 388.5-MW
power project at Vemagiri (Rs 1,050 crore); the Tambaram-Tindivanam
highway in Tamil Nadu (Rs 428 crore); the Tuni-Ankapalli highway
in Andhra Pradesh (Rs 315 crore); the Hyderabad International
Airport Project (Rs 1,200 crore)
MANAGEMENT: Members of
the Group Executive Council are B.V.N. Rao (a college mate),
Srinivas Bommidala (son-in-law), G.B.S. Raju (elder son), Kiran
K. Grandhi (younger son), K.V.K. Sheshavararam (professional,
ex-CMD of Hindustan Zinc), K. Balasubramanian (professional)
SPIRITUAL PROCLIVITY: Rao
is a follower of Sri Sri Ravishankar
QUIRKS: Rao hasn't spoken
to the media in 27 years
INVESTOR INTEREST: Considerable;
GMR Group has raised $125 million (Rs 575 crore) in equity,
$188 million (Rs 865 crore) in domestic debt, and $224 million
(Rs 1,030 crore) in international debt over the past five years;
India Development Fund recently picked up a 15 per cent stake
in GMR Energy, the holding company for the group's power projects,
for Rs 100 crore |
On an uncharacteristically-warm-for-Bangalore
March day, this writer is waiting at Skip House to meet Rao. Skip
House is a modest four-storey building in the high-rise maze of
Richmond Town, and it is from here that Rao manages the Rs 1,500-crore
group. The meeting itself is a result of some 26 months of repeated
requests. "I wanted our actions to speak louder than words,"
says Rao, a well-built man given to occassional bursts of laughter,
explaining the group's we-don't-want-to-be-written-about attitude.
That it has.
Fast Track Forays
Srikakulam, in the northern-most district of
Andhra Pradesh, is famous for its jute-yarn. Locals attribute this
to the mystical quality of the Suvarnamukhi river that cuts through
the district. The Grandhi family hails from the chetty community
that can be found all over southern India. Like other chetty families,
the Grandhis were traders who traded in, among other commodities,
jute. In 1974, G.M. Rao graduated from engineering school and rather
than join the family business, he signed on with Andhra Pradesh's
public works department. Within a year, however, he was part of
the business, having realised that "one cannot earn his way
to riches".
Rao proceeded to steer the family business
into the fast track, acquiring one jute mill, building another one,
and wrangling-as several businessmen of the day did-a licence to
start a ferroalloys unit. And as a chetty businessman, he came in
contact with Vysya Bank, which traces its origin to the chettys.
It didn't take him long to realise that the bank was a good investment.
He started accumulating shares in the bank in the mid-1980s and
ended up the single largest shareholder in the early 1990s. Forays
into sugar, brewing, and infrastructure followed.
| THE RAO ODYSSEY |
|
1974:
Grandhi Mallikarjuna Rao joins Andhra Pradesh's public works
department after completing his engineering
1976: Realises that salarymen
rarely make big money and signs on with the family's jute
trading business
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Ramesh Gelli
|
1977:
Buys a jute mill in Chennai and ships it, down to the last
bolt, to Rajam in Srikakulam. The mill is renamed Vasavi Mills,
after the reigning deity of the chetty community
1978: Sets up another
jute mill, Varalakshmi Mills
1983:
Wrangles a licence to enter the ferroalloys business. GMR
Technologies and Industries Ltd. is born
1984-85 Starts investing
in Vysya Bank
1991:
Ramesh Gelli, then Chairman and Managing Director, Vysya Bank,
and a good friend invites Rao to sit on the board of Vysya
Bank
1991-92: Invests heavily
in Vysya Bank's preferential and rights issues; becomes largest
shareholder
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|
Vijay Mallya
|
1994:
Gelli leaves Vysya Bank to found Global Trust Bank, takes
several key executives with him; Rao commutes regularly between
Srikakulam, where the rest of GMR's businesses are based,
and Bangalore, where Vysya Bank is based, to manage operations
1995: Receives a licence
to start a sugar mill and sets up the Agri Business Division
of GMR Technologies and Industries Ltd. in Srikakulam. In
2000, he adds a 16-megawatt co-generation unit
1996:
Obtains permission to set up a power plant at Basin Bridge,
near Chennai
1996-97: Shifts base to
Bangalore
1998:
Obtains permission to set up power plant at Tanir Bhavi, near
Mangalore
1998: Gets into brewing,
a logical extension of the sugar business
2001:
Sells the brewing business GMR Brewery to UB for Rs 53 crore
2002-03 GMR Group wins
two national highway projects, one in Tamil Nadu, and another
in Andhra Pradesh-both part of the Golden Quadrilateral project
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|
Phaneesh Murthy
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2003:
GMR Group bags the Hyderabad International Airport project
2003: Sells his 38 per
cent stake in Vysya Bank to Bank Brussels Lambert, a subsidiary
of ING. The group earns Rs 560 crore
2003::
Funds Phaneesh Murthy after he quits Infosys; Quintant is
formed
2003: Sells Quintant to
iGate; makes an estimated Rs 13 crore
2004:
Work carries on apace at Vemagiri in Andhra Pradesh, the setting
for GMR's third power plant
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The group may have remained as diversified had
Ramesh Gelli, the chairman and managing director of Vysya Bank,
not quit in 1994 to found Global Trust Bank. Rao found himself catapulted
into the hot seat. He speaks of Gelli (once a good friend) with
no trace of rancour in his voice, despite popular perception that
the former had let Rao down. "There is no question of betrayal,"
smiles Rao. "Everybody does what is in their own interest."
It was while he was managing the bank that Rao founded Ideaspace,
an it company focused on the banking space-Vysya was a clear laggard
in this department-and started flirting with the idea of cashing
in his stake. He eventually struck a deal with Bank Brussels Lambert,
picking up Rs 560 crore on the deal. And combined with its exits
from other businesses-brewing, and its short-lived fling at funding
Phaneesh Murthy (a deal on which it earned a return of Rs 13 crore
on an eight-month investment of Rs 75 crore)-GMR was not only in
the news, but had a war chest to fund its ambitions in the infrastructure
sector.
Power Play
Power-the group has two power plants, that
earn Rs 1,140 crore in revenues and return Rs 110 crore in profits;
a third is under construction at a cost of Rs 1,050 crore-is one
of GMR's infrastructure plays. "Our biggest strength is our
ability to complete projects on time and within schedule,"
says Srinivas Bommidala, Vice Chairman, Vemagiri Power Generation
Ltd. (the work in progress), who is married to Rao's daughter Ramadevi.
Rao, who would like the group to have a presence in "power
generation, distribution, and trading", is also eyeing opportunities
in distribution.
Roads and the new Hyderabad airport are another.
"We hope to achieve financial closure (the estimated cost of
the project is Rs 1,200 crore) by September this year," says
Kiran Grandhi, Rao's son, who is in charge of the airport project.
The overwhelming presence of the family in business could impact
GMR's ability to attract professionals, although Rao makes the mandatory
noises about no one entering "the business unless they have
the required competencies" and points to the presence of pros
such as K.V.K. Seshavataram, the former chairman and managing director
of Hindustan Zinc, and K. Balasubramanian, an AmEx alum (both advisors)
as evidence of managerial bandwidth.
Investors, it appears, concur. Over the past
five years, the group has raised Rs 575 crore in equity and Rs 1,895
crore in debt. "GMR is one of the most focused groups in infrastructure,"
says Munesh Khanna, Managing Director, NM Rothschild (India), the
strategic financial advisor to the group. "It is at the point
of inflection today." Adds V. Leeladhar, Chairman, Union Bank
of India, one of the lenders to the group, "GMR has shown how
a group where companies are managed by the promoting family, can
be professional."
The infrastructure play may also see the group
becoming more visible. The buzz on the Street is that GMR Energy
is readying for an initial public offering in the second half of
2004. And a man who didn't meet the media in the first 27 years
of his group's existence may soon have to address quarterly press
conferences.
RAOSPEAK
"We would like our actions to speak
louder than words" |
 Why
is it so difficult to meet you Mr Rao?
It is not as if we do not want to meet
the media. It is just that we would like our actions to speak
louder than words. We are aware that a lot of our moves have
evoked considerable media interest. That's the reason we are
here.
Over the past few years the GMR Group
has exited businesses such as banking, breweries, and IT.
At the same time, you have made substantial investments in
infrastructure businesses like power, roads, and in the airport
project. Is there a larger game plan behind these moves?
Yes. We want to focus the group's energy
on the sunrise sector of infrastructure. We already have two
power projects running, the third is under construction. Two
large stretches of national highways are being built by us
and the airport project will also take off shortly. We will
exit all non-core areas where the group has no long-term interests.
Does that mean you will exit jute,
sugar, and ferroalloys that still contribute around Rs 350
crore to the group's turnover?
Jute and ferroalloys, definitely, if we
get the right buyer and the right price. But agri business
holds potential. We are committed to the farmers of the area.
Jute to ferroalloys is quite a leap...
You have to remember the circumstances
in which we entered certain business. This was in the licence-quota
raj era, where people entered a business because they had
a licence to do so. In 1983, we managed to obtain a licence
to manufacture ferroalloys.
... and banking? You were once the
largest shareholder in Vysya Bank.
Vysya was initially promoted by our community,
the chettys. In 1985, I began to accumulate small amounts
of Vysya's shares; these were trading almost at par (Rs 10)
and the bank was paying an yearly dividend of 18 per cent.
There was no game plan at any point to
take over the bank. Ramesh Gelli, a friend, invited me to
sit on the board of Vysya as I was a prominent member of the
community and an industrialist. In 1991, there was a rights
issue that wasn't being subscribed. I stepped in and bought
shares. Over a period of time, I became the single largest
shareholder.
Let's talk of IT. You backed Phaneesh
Murthy for about eight months and then exited the business
altogether. Why?
There was never a long-term strategy as
far as it was concerned. Phaneesh was introduced to us by
Tiger Ramesh, who was heading our IT company, Ideaspace. Phaneesh
was looking for a backer and given the value he brought to
the table, we agreed to back him. We invested Rs 75 crore
in Quintant and promised another Rs 75 crore. Eight months
down the line, iGate made a surprising offer to buy us out.
It was a good offer and we decided to exit.
Is it true that you made Rs 13 crore
on an investment of Rs 75 crore for eight months?
Let me just say that we made decent returns.
Is the group overstretched financially
and managerially?
No. We received Rs 560-odd crore from
the sale of Vysya Bank shares, Rs 53 crore from the sale of
the brewery, and some money from the IT business. There are
also enough investors who are more than happy to invest in
us. Last year, we made net profits in excess of Rs 150 crore.
Our ownership levels in most projects are in excess of 75
per cent and if required, we can always dilute (our holding)
a bit. There is usually a huge debt component in infrastructure
and we have raised more than Rs 1,895 crore in debt. We are
financially a conservative group. We have also been attracting
professional managers at various levels.
Where do you see the group heading?
The immediate goal is an asset base of
Rs 5,000 crore by 2005. This might look like a stretch, considering
that our current base is around Rs 2,800 crore. But remember
that the Vemagiri power project and the two road projects
will go onstream by 2005, and the airport project by 2007.
We are confident of achieving our goals.
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