Kushagra Bajaj now betting big on the power sector to expand
Most people know Golagokarranath, in Uttar Pradesh's Terai region of Lakhimpur Kheri, for its Shiva temple. The believers trace the story of this temple to the Ramayana and like to call this place Mini Kashi (Kashi is another name for Varanasi).
To corporate historians, though, Golagokarranath acquired its claim to fame in 1931, when Jamnalal Bajaj set up his first sugar mill there, at the behest of Mahatma Gandhi. It is ironic, therefore, that this factory was at the core of a violent battle, one in which not a drop of blood was shed.
In 2000, Kushagra Bajaj completed his Master of Science in Marketing from the Kellogg School, in Northwestern University of the United States, and came to India to join the family business in what he may have thought would be a blaze of glory. He soon realised he was not much wanted.
The Bajaj empire, with interests in two- and three-wheelers, electrical appliances, finance, sugar, and consumer products, was controlled by Jamnalal's grandsons Rahul and Shishir (sons of Kamalnayan), and Shekhar, Niraj and Madhur (sons of Ramakrishna). The five were so thick it was difficult to make out from the outside who was the brother and who the cousin. Rahul was the head of the family as well as business and the other four deferred to him.
Curiously, it was Rahul's brother Shishir who first spoke of separation. At a family gathering in 2001, he said he wanted to become independent and take away the two businesses he managed: sugar (Bajaj Hindusthan) and personal care (now called Bajaj Corp).
Shishir's brother and cousins did not take him seriously. So he repeated his plea six months later. By now, everyone knew that Shishir's voice was merely carrying the words of his son Kushagra. Shishir's own words were reserved for his son, expressed in private: "Do not destroy what I have built."
He is unlikely to be disappointed by what has transpired in the 13 years since then. His part of the family business, which became officially his and Kushagra's only in a family settlement of 2008, has grown from revenues of Rs400 crore in 2001/02 to Rs10,500 crore. Much of this increase came from sugar.
And now, Kushagra, Vice Chairman of Bajaj Group, has already had enough of sugar. If all goes to plan, his group's revenue will jump to Rs22,000 crore in a year, coming from power, sugar, ethanol, personal care, real estate and infrastructure. That power gets the first mention in that list is deliberate. Kushagra would no longer be known as primarily a sugar producer; power will bring in a bigger share of the revenues. And he may be known much better outside India than he is now.
"We are thinking of doing a new business outside the country. We are drawing up plans. We will invest roughly Rs30,000 crore. I cannot share the details at this moment but it will be completely different from the sectors in which we currently operate. We will make an announcement towards the end of this calendar year," he says.
At 37, Kushagra is several years younger to Rahul's sons Rajiv (who runs Bajaj Auto) and Sanjiv (who heads the finance arm). He would also be several inches shorter and several kilos lighter. But his wispy frame exudes a nervous energy, evident in his torrential speech, and naked ambition.
The ambition was in full view when, in just four years to 2007, he invested Rs4,500 crore to set up 12 new sugar mills to become Asia's largest producer. This was the first business Kushagra took by the scruff of its neck and on to a breakneck expansion. When he acquired land for the first mill, he spent several days and nights at the site, sleeping on a charpoy in the open.
At the same time, he did not forget his roots. A vegetarian and teetotaller, he refused to get into the highly profitable alcohol business, which many see as a natural progression since molasses is a byproduct in the making of sugar. The farthest he has gone in that direction is into making ethanol. Bajaj Hindusthan sells its surplus molasses to other alcohol makers.
The same beloved sugar is now filling Kushagra with bitterness, for the business is not as palatable as it used to be. The Union Government controls sugar prices, while states keep raising sugarcane prices to please farmers - a sizeable vote bank. Former Prime Minister Manmohan Singh's Economic Advisory Council, headed by C. Rangarajan, said the prices of sugarcane, the key ingredient, ought to be linked to sugar prices, but there was no listening in states like Uttar Pradesh, where Bajaj has all his 14 mills. The industry has seen two consecutive years of losses. Bajaj Hindusthan made a loss of Rs1,533 crore in 18 months ended March 2014 (the company moved from October-September year to April-March year). The loss in 2011/12 was Rs234 crore.
The sugar industry is confident that power will be a good move for Bajaj. "Kushagra Bajaj is a smart businessman. He must have done all his calculations before getting into power. We wish him all the best," said Gaurav Goel, Managing Director, Dhampur Sugars, a company that runs five mills in UP.
Watch video: Kushagra Bajaj aims at Rs 22,000 cr group revenue
"This is the first business I built and expanded. But I have no control over things anymore. I have left it to God. If they bring in a formula for sugarcane pricing, we will rake it in. But right now the future is bleak," says Bajaj. He has not made any investment in the business since 2007. At the same time, he is glad for the experience. "It has made me tough. The good thing is that it has not taken away my hunger to grow."
He is trying to douse that hunger in power.
In Lalitpur, a heart-shaped district in UP's Bundelkhand region, one can see a sudden sprouting of pucca houses in the Mirchbada village (which has 2,500 people) and Baragaon (8,000). Those are the closest settlements to a 1,980 mega watt power plant Bajaj is building at a cost of Rs12,000 crore, his single biggest investment to date.
Many residents of the two villages, and of other, farther ones, have found jobs at the site. In cases, both father and son are working at the plant. To them, Bajaj is a gift from heaven. The day his helicopter lands, which is almost every other month, is an event in their lives. It causes a stir among the locals as well as the managers and workers at the plant. The first and last vehicles in his convoy of more than a dozen vehicles, which assembles in a flash once the helicopter has landed, are usually police jeeps.
K.J. Varkey, Chief Executive Officer of Lalitpur Power Generation, who joined Bajaj from Gurgaon-based infrastructure company Lanco over a year ago, says nearly 7,500 people are working at the site. He expects the first unit to start producing electricity by December, and all three by June next year. The plant will then become the biggest private power unit in UP, overtaking Reliance Power's 1,200 MW Rosa Power Plant in Shahjahanpur. Jaypee Group is setting up a plant at Bara, Allahabad, which will be of the same size as Bajaj's.
Bajaj's plant can grow further. There is enough land, as well as approvals, to double the capacity at Lalitpur. However, there is not enough coal to do that, despite an agreement with Coal India for half the current requirement of 16 million tonnes a year, and ad hoc arrangements for another 20 per cent.
The coal supply may get better soon. Bajaj acquired an Indonesian coal mine three years ago. "The mine has been developed by us and has certified reserves of 100 million tonnes," says Manoj Maheshwari, Group CFO of Bajaj Hindusthan.
Even if there was enough coal, would it be a wise move to double capacity, given the capricious nature of state electricity boards? "We have signed power purchase agreements with the UP government for 25 years, which guarantees us a 15.5 per cent annual return on investments. Over a period of 25 years, this power plant will generate Rs62,500 crore cash for the company after repaying the debt," says Bajaj. "The money received by the board against power supplied from our plant will go into an escrow account linked to our banks."
"I find Kushagra extremely hands-on in everything he does. He has a great fighting spirit. In spite of all the problems of the sugar business, he has never given up. The diversification is a good decision," says R.K. Panpalia, Managing Director, Wave Group, who spent 11 years with Kushagra and played a key role in the expansion of his sugar business.
Profit Makers
As power is slated to overtake sugar in investments and importance, Kushagra's personal care company, Bajaj Corp, outshines every other with its profitability.
It was once known as Bajaj Sevashram. Its importance declined as other businesses, such as two- and three-wheelers, grew, and Bajaj Sevashram became the holding company for the undivided group's various businesses. At one point, its dividend earning was higher than its operating profit, says Sumit Malhotra, Managing Director of Bajaj Corp.
In 2001, the operational part of Bajaj Sevashram was transferred to Bajaj Consumer Care. It was listed in 2010 as Bajaj Corp and today has a market cap of Rs3,500 crore. Investors are enthused by its net profit of Rs150 crore on sales of Rs672 crore. In 2004, when Malhotra joined the company, its annual revenue was just Rs68 crore. In a report in April 2014, JM Financial said the company had an opportunity to increase market share and sustain the high growth trend.
"The FMCG business started getting importance only after Kushagra joined the group. He was keen to scale it up. We have grown from two factories to 16," says Malhotra. His target is to reach a turnover of Rs2,000 crore in three years. "We have a plan to enter new geographies. We have set up a subsidiary in Bangladesh and will manufacture and market products there. A subsidiary has also been recently set up in the UAE to cater to the Gulf countries."
Its main product, almond oil, has a tenth of the domestic branded hair oil market after Parachute and Dabur Amla. "If things go right, we will be the second-largest player in another year," says Malhotra of Bajaj Corp.
Bajaj Corp, a debt-free company with cash reserves of Rs400 crore, recently acquired skin care brand No Marks from Ozone Ayurvedics for Rs140 crore, and is looking for more acquisitions, especially overseas, so that it gets a ready distribution chain. "We never did an acquisition. If we are able to integrate [No Marks] and turn it around, we can look at bigger acquisitions," says Bajaj.
There is another high-profit business in Kushagra's fold: real estate, privately held by the family. Though small in size, it generated Rs110 crore in profit on sales of Rs300 crore.
Kushagra wants to one day be counted among the world's richest and most powerful businessmen. The trouble is, as he concedes with a chuckle, "I have no clue how to get there. I have miles to go. The probability of getting there would be zero."
Stopping him in his tracks would be the high debt accumulated by Bajaj Hindusthan (Rs7,000 crore), Lalitpur Power Generation (Rs5,000 crore), and Bajaj Energy (Rs1,700 crore). But Maheshwari, who has spent over six years in the group, says debt will get addressed once the Uttar Pradesh government puts in place a rational mechanism for sugarcane pricing. "The interest payment in Bajaj Hindusthan is being made in time. We have been able to get support from banks for operations."
Then there is Kushagra's complete devotion to the job at hand. "I do not socialise, most people have now stopped inviting me to parties," he says. His favourite entertainment is watching Mahabharat on television with wife Vasavadatta (sister to Aditya Birla Group chief Kumar Mangalam Birla) and their three children: sons Yugadikrit and Vishwarupe and daughter Anandamayi.
Looking back at his spat with uncle Rahul, Kushagra feels glad that his father Shishir stood by him. The father would be glad that none of what he had built has been destroyed.
