We must support manufacturing even if it hurts profits in the short term: Shriram Group founder R.Thyagarajan

The Chennai-based Shriram Group's co-founder R.Thyagarajan (75) is as much an aficionado of Carnatic classical music as he is a financial wizard. He has been listening to music since he was five and is an ardent admirer of violin maestro Lalgudi.G. Jayaraman, to help whom he even started a business. A mathematician and statistician by training, he discusses the humble beginnings, journey and the philosophy of the Shriram conglomerate which today has assets under management of Rs 60,000 crore in financial services and revenues of Rs 4,500 crore in other businesses. Edited excerpts:

How did the name, Shriram, come about?
In 1974, like most financial businesses did those days, we applied for registration of our chit fund business with the name Lakshmi. The authorities told us that Lakshmi was not available. They, instead, offered us Shriram. We went ahead with that.

What made you start the Group?
Those days I was working for New India Assurance Co. in Hyderabad. I had a friend, A.V.S. Raja, working for the Railways in the same city. It was our love of music that brought us together. Both of us were associated with this organisation called Kalasagaram which worked to promote music. Raja wanted to get out of the Railways, and start a business of his own for which he needed capital. So we decided to start a chit fund as that was the easiest way to get capital. All that we needed to do was put together a few people. We started the chit fund with Rs 1 lakh as capital, and he became its managing director. I, however, continued to work for New India Assurance and later for Vysya Bank and J.B. Boda & Co until 1990.

How were you, then, involved with the Shriram Group?
I had a limited role in that I would put together people and ideas. I cannot claim to have had a vision those days, but I always tried to create something out of what was available then.

The Shriram Group does not seem to be as successful in non-financial businesses as it is on the finance side …
I would say we have been doing well in non-financial services business also. Over the years, we have been instrumental in creating at least three to four world class enterprises outside financial services, which we both promoted and developed. Today, of course, we don't own them: Shriram Sembawang Logistics, Hi Tech Arai and Medicorp Technologies. All of them are very good non-financial enterprises which we created from scratch, developed and exited. We had good (joint venture) partners. They bought the respective businesses except Medicorp which was sold to Matrix.

We, of course, had this business that struggled, too. We were making pet bottles, under the brand name Shri Pet. We ran it for about eight years until 2003. The brand was well known in Tamil Nadu. One good offshoot of this business was A.R. Rahman's jingle on the product. He was not yet well-known at that time, and this jingle was his first interaction with general public. We had this jingle on the radio, and it caught on and became popular.

You exited some businesses because of issues with the regulator?
Yes. We exited under regulatory pressure. One or two of them (regulators) felt we were diversifying into non-finance businesses to siphon off funds. We were, in fact, diversifying more to add value to shareholders. Those days, inflation was very high, and we thought diversifying into non-financial businesses was a good hedge against inflation. But we exited to demonstrate our good intentions.

Has Shriram Properties reached the expected levels?
It is doing quite well and has its presence in Bangalore, Chennai, Vizag, Coimbatore and Kolkata. It was started with a capital of Rs 5 crore or so, and it has completed and delivered 7 million square feet of space, and another 10 million square feet is in the works. Our information technology company, Take Solutions, too has evolved with our own team and shaped up well.

We entered non-financial services only around 1987. That way the non-financial services business is younger by 13 years. We have to see what it will be in another 13 years.

What is your Group's approach to entering a business?
One peculiar thing about the Shriram Group is we are not into any business on our own, but we support people who are entrepreneurial. We go with them and provide financial support to them. There is this diagnostic company and it is very enthusiastic about the business. Similarly, there is another company into pharma formulations. We have supported both of them.

Like a private equity player?
No, I would not call it private equity. I would say we are more of venture capitalists, or play the role of angel investors. We provide first stage support. This is what we have been doing for many enterprises. You will find a number of small, miniscule and medium scale units supported by us. We don't say all of them should grow very fast or very big. We don't have that kind of ambition. We even help entrepreneurs with the Shriram brand if needed.
We don't acquire any company out of any intention to do so. We buy only those businesses which come on their own to us. It is more of a partnership than acquisition. Many of our businesses evolved like that.

Can you give an example of a business you had no intention to start but put together?
Shriram EPC was a business that was not our own, but only assembled by us. It is today worth more than Rs 1,500 crore. Some businesses were struggling. There was a cooling tower business, a conveyer equipment company, an EPC company, a water treatment business etc. We took over either the businesses or teams from these firms, brought them together, combined them into one, and they became Shriram EPC.

Sree Jayajothi is part of your group. How does it look?
Jayajothi is going to do well. We started financing it as an EPC business, and its promoter had difficulties in completing the project. We then converted the loan into equity. Jayajothi is today supported by the Shriram Group, and I am sure it will do well.

How is your stock broking business shaping up?
We are doing well. We help people to enter the equity culture. They say financial domain acquires depth if you create an equity culture. It was actually an accidental acquisition. We made an investment to help somebody. People who owned the business exited, and our people took charge of it.

Banking seems to be a gap in your financial services business? Any plans to get there?
If banking is defined in a narrow sense as pooling the savings of the community and lending it to people, then we are already in that business, and our size of Rs 50,000 crore is bigger than the turnover of many banks. These days banks want to offer a wide range of financial services to achieve economy of scale. Banking these days involves a broad spectrum of activities. Formally we have not got into a bank. We don't have plans, or we never had a vision of that kind, but if there is an opportunity, we will assemble resources and get into the banking business. We know we can run it, and run it in a different way. There will be a learning process during which we will not do well. We are aware of it.

Can you tell us something about your interest in classical music?
I have been listening to classical music for almost 70 years now, or since I was five. Around 1953, I settled down to Lalgudi Jayaraman (well-known violinist). I listen to him only. I consider classical music is best with Lalgudi.

He has enormous commitment and passion to create excellence. The true genius is the one who has an infinite capacity to take pains to achieve perfection. Lalgudi is one of them. I have the greatest admiration for him. He is not just a great interpreter of music but a great creator. He is a symbol of excellence. In fact, my niece Akhila Natarajan was trained under him. I have treasured 1,500 hours of recorded collections of Lalgudi.

Lalgudi was also associated with Shriram Group in some way, right?
Yes. In fact, we started a partnership firm, Shriram Investments Ltd, to ensure the maestro did not suffer any financial difficulty. Later we made him an independent director on the Shriram City Union Board. He was very shy when it came to money, and would often say his sitting fee from board meetings was more than what he was getting from performances.

What message does Lalgudi's life as a musician hold for businessmen?
You need enormous commitment and passion to create excellence. You need to take infinite pains to create a successful enterprise. I often tell my young colleagues about this and ask them not to give up anything midway.

Every business has its ups and downs. In India, you get talented people to run any business. An enterprise needs five to six years before it can stand on its own. One needs patience.

How do you want the Group to do business in the coming days?
I would expect the Shriram Group to continue to play its useful role, not just by providing financial support for the excluded group, but also by supporting manufacturing and other entrepreneurial initiatives.

I would expect the group to strengthen not merely the financial services business, but also sacrifice some of its wealth to support non-financial business particularly in manufacturing and innovation. The group should do it even if it means some cost to its immediate profit. That is why we divided the group resources and allocated 25 per cent to another trust into which we transferred all our investments in non-financial business. Today, the wealth may be Rs 1,000 crore and, in three years, it may come down to Rs 300 crore. But one should not worry about that. At the end of 15 years, if you are back to Rs 1,000 crore, it is okay. But you have supported manufacturing, innovation etc. The safety and security of the financial services may not be available to this sector, but the community needs it. This is what should be our corporate social responsibility: allocate 25 per cent of our wealth in building new businesses. I would be very happy if the Shriram Group enthusiastically engages itself in building enterprises in the coming two decades.