Just when everyone thought CEO B.K. Modi had mastered the zen of the joint venture, he is selling out of them. All.

By Jaideep Lahiri

If you always knew him as Mr Joint Venture, you can now call him Mr Arbitrageur. Bhupender Kumar (BK) Modi, the 49-year-old CEO of the Rs 1,300-crore B.K. Modi empire, may have spent the last decade-and-a-half sealing joint ventures with global majors--ranging from copier giant Xerox Corp. (Xerox) to computer-maker Olivetti to telecom major Alcatel--but he is now spending most of his time extricating himself from them.

Along with an amendment to his old epithet, there will also have to be corrections to the neat, silver-blue etchings on the glass-panelled entrance to the group's headquarters in Delhi. Those etchings, which grandly list out the 7 joint ventures that Modi forged, need a quick update. Strike out Modi Alcatel because Modi has sold his 40 per cent stake to the Paris-based Alcatel for Rs 35 crore; scratch out Modi GBC because Modi is selling his stake in it too; and last, but not least, put big question-marks against Modi Xerox and Modi Olivetti.

For an entrepreneur who bucked the trend by spotting opportunities in joint ventures before many of his peers did, what does the spate of sellouts mean? For one, it signals the end of the Modi Model, under which he successfully managed joint ventures--even if it sometimes meant ceding management control to his foreign partners. In 1997, Modi had proudly proclaimed that his group's turnover would touch Rs 20,000 crore by 2002. Barely 2 years later, he is paring his businesses, and walking out of his grand alliances.

What, then, has changed? Modi himself. Meet B.K. Modi, the New Millennium Model. This is a Modi who now openly admits that some of his past investment decisions were wrong, and explains how he wants to get out of manufacturing to consolidate his telecom and related businesses. As for future focus, Modi is betting on value-added infotech services: setting up Internet portals--a la Yahoo! or AltaVista--and providing support software to companies like Xerox are businesses that ModiCorp hopes to get into.

"As the economy grows, the Net and other services offer tremendous opportunity, and the telecom companies are best- placed to tap this because they already have the backbone," avers S.D. Saxena, 50, Financial Advisor, Mahanagar Telephone Nigam. "Knowledge," adds Modi, "has been available for decades; it is connectivity that has been lacking. We can use some of our new (telecom) businesses to create connectivity and add value." To tap these areas--and increase his stake in Modi Rubber, since the financial institutions plan to sell off their 44 per cent stake (market price: Rs 118 crore) in the company--Modi needs cash. And he hopes to generate Rs 1,500 crore from the sellouts.

EXIT NON-VALUE-ADDED BUSINESSES. Out of the old and into the new. That is Modi's mantra. You could call him an entrepreneurial arbitrageur who spots new opportunities, invests, reaps pay-backs, and then moves on to fresh pastures. But Modi says sharp focus and value-addition are driving his instinct for new businesses. "To compete in the global environment, we need to be more focused in our approach. And if I'm not creating value in my companies, there's no point in controlling them in the first place." Apply that logic to his group, and some of them--hardware, tyres, photocopiers, and paper--go out of the window.

If Modi gets out of such areas, he will have an unlikely group of supporters: the financial institutions. Tired of the in-fighting between the Modi scions--BK and his 4 brothers--the institutions are hoping that the group can shed some of its poorly-performing businesses. Says Tarun Ganguly, 54, Executive Director, Industrial Finance Corporation of India: "It's a good sign that family-owned groups are getting out of certain manufacturing businesses."

However, are BK's exits part of a grand strategy, or is it because of more compelling factors? Plump for the latter. For one, the foreign partners in some of the joint ventures are not satisfied with mere management control; they want a majority stake too. Take the case of Modi Xerox, in which Xerox owns a 40 per cent stake while the Modis have 35 per cent. After enjoying a near-monopoly in the Rs 700-crore, mid- and high-end photocopiers market, it is now facing competition: Canon has raised its marketshare from 5 per cent in 1993 to 20 per cent in 1998 in the same segments.

Although it has focused on services, Modi Xerox has failed to upgrade its products to match its rivals' offerings. For competitors, that has meant easy meat. Says Paul Wilkinson, 50, Managing Director, Gestetner: "Modi Xerox has established itself in the analog segment. But we believe the future lies in selling digital photocopiers." Agrees Chandrasekhar Diwakar, 29, Research Analyst, Credit Lyonnais: "The lack of new products has robbed the company of a decisive advantage." To gain lost ground, Xerox needs to make huge investments. In February, 1999, the promoters pumped in Rs 86.40 crore through a preference issue that increased their stakes by 5 per cent each.

More funds will be needed. For that, Xerox is planning to hike its stake to 51 per cent--even 100 per cent-- so that the American giant can increase its commitment. Modi appears to be willing, and a couple of options are being explored. He could renounce his rights in a fresh equity issue, or merge 2 other joint ventures that he has with Xerox. Either way, Xerox's stake will go up and Modi's will drop. "We may go in for a combination of both these plans," explains Deepak Mohla, 48, Managing Director, ModiCorp. BT, however, learns that Modi will sell his entire stake in Modi Xerox if he gets a price of Rs 300 a share, or Rs 200 crore. Given that the scrip price is Rs 152 (on April 9, 1999), Xerox may not be willing. In fact, it is trying to set up a fully-owned subsidiary, which has been opposed by BK.

It is a similar story in his other ventures: Modi GBC, which makes binding paper, and the loss-making Modi Olivetti. In Modi gbc, Modi gave away management control to his 40 per cent partner, General Binding Corporation, and he will probably sell out. Denies Raghu Murthy, 50, Director, ModiCorp: "We have no immediate plans to sell our stake in Modi GBC. In fact, we have just invested Rs 4 crore in the company's equity along with our foreign partner."

The same optimism is reflected in the case of Modi Olivetti, which was saddled with accumulated losses of Rs 10.41 crore on December 31, 1997. Says Arun Sethi, 44, CEO, Modi Olivetti: "We believe that the losses can be wiped out in the next 2 years." Despite that, Modi Olivetti, which clocked a meagre turnover of Rs 19 crore in 1998, is unlikely to grow rapidly in the near future. Although the Indian venture is trying to become a solutions company, rather than a hardware manufacturer, the going will be tough. Agrees a consultant at Ernst & Young: "Every infotech company is riding the solutions bandwagon. But setting up networks and providing solutions is not easy." Therefore, a sale is imminent, at least in the medium term. While the company refuses to comment, Murthy says: "If, as partners, we cannot bring any value to the table, we will exit."

If that is taken seriously, the B.K. Modi Group could even sell a part of its stake in Modi Rubber--after BK and V.K. Modi, who jointly manage the company, have purchased the financial institutions' stake. The reason: Modi Rubber's fortunes have been on the decline, and it incurred a net loss of Rs 24.84 crore in 1996-97 (ended September 30, 1997). BT learns that Modi is talking to Modi Rubber's technical collaborator, Continental of Germany, to rope it in as a strategic investor. However, this may only happen if Modi gets a good price: Rs 100 per share. Or Rs 65 crore.

GROW THE INFOTECH AND TELECOM BUSINESSES. With so many potential sellouts in the pipeline, Modi could have a field day in the sector that has now found his fancy: telecom. While most of the players are caught in a financial jam, one of ModiCorp's telecom ventures, Modi Telstra--which offers cellular services in Calcutta--is expected to earn cash profits this year (1999-2000). The other venture, Spice Telecom--which holds the cellular licences for Punjab and Karnataka--will break even after another 2 years.

Modi plans to use his foothold as a base for diversifying into offering Internet services, and starting information portals. Such diversifications need investments of upto $200 million (Rs 850 crore). Worse, the existing players themselves are on unstable ground. Predicts Manoj Kohli, 40, CEO, Escotel, the cellular operator in Uttar Pradesh: "The New Telecom Policy is likely to change the rules of the game, and some of the existing operators may lose their competitive advantages."

No one expects more than 6 large players to emerge unscathed from the shake-out in the industry (both cellular and basic services). And Modi may not be one of them, especially since, so far, the success of Modi Telstra and Spice Telecom has more to do with the financial state of their competitors in their respective circles. Explains a senior official in the Department of Telecommunications: "In Punjab and Karnataka, the second cellular operator, JT Mobile, is virtually non-existent. And, in Calcutta, Usha Martin is facing a bigger cash-crunch than the Modis."

Therefore, Modi may cash out of these businesses too. Going by the fact that he has already invested Rs 1,200 crore in telecom ventures, this will happen only in the medium term. By then, his offshoot businesses may have also stabilised, thereby allowing him to get rid of the cellular operations. For the moment, the Modis deny any exit plans. On the other hand, Modi's only son--and heir-apparent--Dilip, 25, talks bullishly about telecom, and how a young team will lead the group's foray into this sunrise sector. The average age of Modi Telstra personnel, says he, is less than 30.

CHANGE HIS ENTREPRENEURIAL IMAGE. Few other industrialists have disregarded the canon of core competence more than Modi. Between 1989 and 1999, he has either dreamt about, or dabbled in practically every sector that looked lucrative. From helicopter-services to paper cups, from telecom to hotels, from copiers to power projects. Once, he even wanted to make a mega-budget Hollywood movie. Modi has toyed with so many ideas that his managers lose track. Recalls Deepak Sharma, 42, Director, BTR, and a former executive in Modi Xerox: "Even there, there was constant talk about new projects."

So constant was Modi's penchant for dreaming of new businesses that many of his associates take his new-found mantra of focus with a pinch of salt. Sooner or later, they say, he will go back to his old ways. Probably. But, if Modi can successfully transform himself into an arbitrage entrepreneur in the process, that won't be such a bad thing. For, the Buddhist may go laughing all the way to the bank.

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