Success against the tide

The Nand Ghanshyam Industrial Estate in Mumbai’s Andheri area conveys a sense of dilapidation, of decay and of being deserted. The kutcha road inside ends in a two-storied commercial complex that reeks old-economy —the last place one would expect to find a risk-management firm.

But, amid the heady smell of machine oil and grease is the headquarters of CRP Technologies, one of India’s largest background screening firms and among the top three from the 4,000-odd SMEs rated by the SME Rating Agency of India for their credit-worthiness and business model.

For CRP, it has not been easy to make it to the hall of fame of SMERA, India’s SMEfocussed rating agency. And the nondescript location is incidental to CRP’s success.

“We are in B2B business so we don’t need to invest in glamorous offices,” explains Rahul Belwalkar, the 35-yearold CEO, sitting in his mezzanine office. Belwalkar, an IIM Lucknow alumnus with stints in ICICI Pru Life, Reliance Life and ABN AMRO, is neither the Founder-Promoter nor the owner. Hitesh Asrani and Ashutosh Navalkar, CRP’s young founders, inducted him in July 2008 to run the show. That decision to separate ownership from management is part of CRP’s success.

CRP Technologies

Two management graduates decided to do their own thing, without any family background of business and at a time when jobs were for the asking. Starting as a background-screening firm for telcos, the duo today are into risk management for insurance companies, and auditing.

Key: Clear demarcation of ownership and management.

“Resources will always be scarce - every business unit has to pull its weight. There is a clear owner for profitability of every business line” - Rahul Belwalkar, CEO, CRP Technologies

“Resources will always be scarce— every business unit has to pull its weight.There is a clear owner for profitability of every business line,” declares Belwalkar, who has half-a-dozen industry professionals in his team.

So what made Asrani and Navalkar give up their managerial role?

“We are contributing our energies to create a blueprint for CRP post-2013,” says 39-year-old Asrani, who, along with Navalkar, set up CRP in 1997. Since then, CRP has transformed itself from a pure background-screening firm to a player in recession-proof verticals like risk management, claims management and internal audits.

Today, it’s hard to spot a successful SME like CRP that has managed to stay afloat despite the mayhem in the small enterprises world caused by the global financial crisis.

Charu Dutt Sharma, Head of Operations at SMERA, reasons, “Large corporates have the wherewithal to stay afloat even in a challenging environment because of their network and relationships, but small enterprises are prone to failures in such situations.”

That’s what happened in the last one-and-a-half years when many an over-ambitious SME got washed away. There are actually two dozen SMEs that today enjoy the highest rating from leading credit rating agencies, apart from the ones featured here.

Just Some Good Sense
It’s not divine power that rescued them, but the experience and the wisdom of promoters and the quality of top management.

V.D. Sanghavi of engineering firm Aarvi Encon Pvt Ltd, which has CRISIL’s SME1 stamp, did not get infected by the craze for expansion during the buoyant 2003-2007. A late entrepreneur, Sanghavi had worked for over two decades in engineering, for firms like Merck Sharp Dohme, Lubrizol and Davy Powergas. He was working at a senior position at Bhansali Engineering Polymers when he went solo, in 1987, at a very short notice.

One day, Bhansali Engineering’s owner asked him to rush to the Nagpur plant, but he refused flatly to do so. “I had actually told him at the beginning that I will never leave Mumbai,” remembers Sanghavi. He set up Aarvi after resigning from the company, but quickly realised running a successful business is a different ball game.“We have been quite conservative in our approach,” says Sanghavi, who operates from an old industrial estate in Mumbai’s Lower Parel. Concurs SMERA’s Sharma: “The successful SMEs always put a check on costs.”

Aarvi Encon

Born out of the promoter’s impulsive decision to chuck up a job, the engineering and project management consultancy today serves the who’s who of India’s chemicals, petrochemicals, power, fertilizer and oil & gas sectors.

Key: Conservative but steady expansion.

“We want to aggressively diversify and expand the product basket to telecom, cross country pipelines, power, oil and gas and automobile.” - V.D. Sanghavi, Managing Director, Aarvi Encon

Sanghavi shares a business secret, much to the amusement of his son Jaydev Sanghavi, Executive Director. “I used to hire on a part-time basis top Indian engineers working abroad when they used to come home for holidays,” he discloses.

If Sanghavi took almost two decades to rise to the top, M.S. Theivendran did it in just five years after setting up Swiss Garnier Life Sciences. This professional from Chennai spotted a big opportunity in contract manufacturing and headed to Himachal Pradesh in 2004. “You need a world class infrastructure for contract manufacturing which also offers competitive advantages,” says Theivendran.

Theivendran is no hardcore pharma professional—he has also worked for oil major ONGC for several years. “That stint gave me some insights into scale of production,” says Theivendran. In fact, his entry into business coincided with high growth in the economy, but Theivendran stuck to his strategy of not leveraging too much. “Whatever modernisation or expansion we did was funded by internal accruals,” he says.

Debt Do Us Part? Never!
This near-absence of debt is a common thread. Take 61-year-old Janak Shah. The MD of Inventia Healthcare (formerly Themis Laboratories), Shah has not visited a bank for finance for many years now. “I don’t believe in splurging or leveraging whether in good times or bad,” he says, whose company also boasts of the SME1 stamp.

Shah has faced a decade of stagnating demand for his focus area— novel drug delivery systems (NDDS)— despite having big clients like Glaxo, Parke Davis and Rhone Poulenc. An NDDS can replace multiple doses with one single drug without side effects.

Shah has expanded without diluting equity. In 2007, Shah migrated from Thane plant to Ambernath, where the company had bought land when prices were low in 2004. Similarly, CRP is making the next big move overseas by setting up an office in West Asia.

Turning Points
Asrani and Navalkar, who started out as first generation entrepreneurs in 1993 fresh out of B-school even though there were jobs aplenty for young MBAs, chose services as manufacturing would have required capital. “We started syndicating loans for corporates by tying up with Mafatlal Finance,” says Asrani.

Three years later, they ventured into credit verification for Max Touch. Asrani spotted a big opportunity in risk management when insurance was being opened to private players in 2000. That was the turning point. CRP saw gold in the challenge of lastmile implementation of risk management tools. “We decided to support our clients in execution, and today this has become one of our biggest strengths,” says Belwalkar.

Themis Laboratories

Pfizer, Glaxo, Bayer, Aventis are among its customers from India and abroad. It was formed by a husband-wife duo who plunged into the ‘knowledge space’ of working on novel drug delivery systems at a time when not many were aware of the possibilities.

Key: Thinking ahead, spotting a trend and persevering.

“We would look for inorganic growth in future, but it should be based on our strength” - Janak Shah, MD, Inventia

Sanghavi saw a big opportunity for a small specialised player when Davy Powergas India began farming out jobs. An advance of Rs 8 lakh given by Herdillia Chemicals Ltd in 1997 helped him kickstart his operations. “This advance of Rs 8 lakh was big money,” says Sanghavi, who shared an excellent relationship with the MD of Herdillia.

Shah, too, had a difficult start. He first joined the family’s pharma business after completing his B. Pharma in 1970. After 15 years, he split to start his own venture when he sensed opportunity in the knowledge space. “Those days nobody applied their mind to explore the knowledge industry in the pharma sector,” says Shah. He, along with his wife Maya Shah, set eyes on novel drug discovery systems (NDDS).

“NDDSwas a multinational driven technology. We received lot of encouragement from them,” he says.

Having emerged stronger post the downturn, Shah is now eyeing the big NDDS market abroad. He says in the US alone, the NDDS market is over $60 billion (Rs 2,88,000 crore). “It’s like an ocean,” says his wife Maya.

Cautious Growth
The SMEs are also working to de-risk the revenue model by exploring highly regulated markets of the US and the UK, but there is no hurry to divest or expand equity. Shah is also eyeing a small acquisition abroad: “We would look for inorganic growth.” Inventia will eventually follow the listing route but the plan is to first achieve a critical size.

CRP wants to be a Rs 100-crore enterprise in the next three years. “There is also no hurry to unlock value by making an IPO or PE funding,” says Belwalkar. The value multiplier changes if one has a bigger balance sheet. That’s what CRP is aiming for.

Another IPO candidate in future, Aarvi, is today valued at over Rs 200 crore. Theivendran of Swiss Garnier has set a goal of a turnover of Rs 150 crore before thinking of going public.

In early 2000, Inventia was doing sales of less than Rs 10 crore, against nearly Rs 100 crore today.

All these SMEs face another challenge as they scale up: that of passing on the baton to the younger generation, most of them armed with management degrees from abroad, unlike the first generation.

Will the transition be smooth? Krishna Tanuku, Executive Director at the Indian School of Business, who runs an entrepreneurship development programme, says: “Some of the new generation may have a degree from a management school abroad, but they need to adopt their knowledge to our ground realities in India.”

“So while these SMEs seem to have won the first round, they face tests ahead not only on issues like succession and changing market dynamics, but innovation and manpower,” he adds.