Bajaj Groups Strategic Response

Updated: Jun 29 2002, 05:30am hrs
Has the Buland Bharat ki buland tasveer finally started showing signs of weakening Generations of Indians who have grown up with images of a joint family that the Hamara Bajaj campaign evoked, and which also in a microcosmic sense was possibly reflective of the Bajaj family group itself, are now witnessing signs of a crack at the Bajaj citadel.

"I have the support of my four brothers and even my sister is with me, and I am sure we will come to an amicable solution by discussing the issue internally
RAHUL BAJAJ, Chairman & MD, Bajaj Auto
So, when news broke out that Shishir Bajaj, the younger brother of Rahul Bajaj had expressed a desire to separate and consolidate his position in his companies he managedBajaj Hindustan, Bajaj Sevashram and Bajaj ConsumerCare and sell off his holdings in Bajaj Auto and the other group ventures, it rocked corporate Indias Richter scale.

While, Bajaj watchers point out that this had been brewing for quite sometime, Rahul Bajaj himself admits that it has been over two years since Shishir had expressed a desire to separate.

Ironically, Mr Bajaj himself had dwelt at length on the issue in noted business historian Gita Piramals book Business Maharajahs as long back as 1994. He indicated:

If there is a split, it can be 1:4 or 2:3, there is no other possibility. If one guy wants to go, there is no problem. He just goes, and if the four dont want to give him anything, he doesnt get anything. Hell get his money and his wealth according to his share. But he cannot get Bajaj Auto, whoever it is, including myself. He went on to emphatically claim: The way we know people, it wont happen till I am there. After me, I cant say what will happen.

There are pressures and pulls of modern day management which have impacted business families to some extent
HARSH GOENKA
Chairman, RPG Enterprises
It would be difficult to say, in hindsight, whether Rahul Bajaj was prophesising. Ironically, a few years down the line, it has not happened quite exactly that way, as his own brother now desires to break free and also insists that Bajaj Auto be split into two companies.

Says Rahul Bajaj, The question of Bajaj Auto being split does not arise and we are yet to receive any concrete proposal from Shishir. And, while the Bajaj family sticks to its earlier stand of not dividing the aujo major under any circumstances, the overwhelming question remains: What does Shishir Bajaj stand to gain from the split Nothingif some of the Bajaj family members are to be believed. If it is rewarding to separate, wouldnt I also have done it, asks one of the brothers bluntly.

It is good to be a part of the Bajaj Group. There are benefits of synergy in everything. If your company is not doing well, you can always depend upon the others for help and advice, says chairman and managing director of Bajaj Electricals, Shekhar Bajaj.

Shishirs portfolio
Even for Shishir, it would be better to stay under the Bajaj umbrella, says an industry observer. Bajaj Hindustan, the company that he directly manages reached its peak some years back, but has since been relatively stagnant. While Bajaj Hindustan has by far the largest sugar capacities in the country with 17,000 tonnes of canes crushed per day across its two mills in Uttar Pradesh, its margins have been under tremendous pressure as sugar prices have plunged to a six-year low. Despite an increase in net sales, net profit margins have declined from 3.4 per cent in 1999-2000 to a mere 1.3 per cent in 2000-01.

Family businesses tend to pull together in times of difficulty rather than when the going is easy
JOHN WARD
Professor of Family Business, IMD,
Switzerland
Even Bajaj Sevashram and Bajaj ConsumerCares performance have been slippery, with its amla hair brands losing market share steadily to newer players in the market like Marico Industries.

What perhaps drove Mr Shishir Bajaj to demand a split in assets is his immense faith in the entrepreneurial abilities of his son Kushagra, who joined the group in December 2000. To Kushagras credit is the B2B venture E-sugarindia, the countrys first online sugar futures exchange, that was launched last year. Notably, E-sugarindia which had an initial equity base of Rs 3 crore that has been subsequently raised to Rs 4.5 croreis held by Bajaj ebiz. Bajaj ebiz in turn is controlled by Bajaj Hindustan and Bajaj Sevashram. Bajaj Hindustan contributed Rs 2.28 crore to the initial equity base of the company. Kushagras younger brother Apoorv has joined the other group company, Bajaj ConsumerCare.

Could it be that Shishir has spotted budding entrepreneurs in his sons and needs the funds to invest in them Investing in non-core, unrelated businesses will be difficult staying within the broader family framework. At a time when diversifying is a dirty word, not too many would want to risk investing in new non-core ventures, says an analyst. Encashing his stake would at least give Shishir access to subtantial funds for future ventures.

Family insiders say that broadly Shishir would like to buy out his brothers share in the companies he manages in exchange for his stake in his brothers companies. With Bajaj Auto the obvious jewel in the crown, he would also end up being a net receiver of cash. Shishirs stake in the flagship company is estimated to be roughly over 5 per cent of the total shareholding, which works out to around Rs 290 crore at current market prices. He would also be entitled to another Rs 15 crore for his stake in other group companies, but will have to part with Rs 25 crore to buy out his brothers in the companies he manages.

The flagships importance
But the most pertinent question at this hour: is it worth getting out of the Rs 4403 crore-Bajaj Auto The company is a global player in the two-wheeler industry and has a sound financial position with a 98 per cent increase in net profits last year and margins that have grown significantly from 9.5 per cent in 2000-01 to 16.5 per cent in 2001-02. Also to be taken into account are the companys ambitious plans of becoming a global hub for Kawasaki, its technical partner, in the low-end motorcycles segment.

What is also significant is that Rajiv, Mr Rahul Bajajs eldest son, has over the past few years proved his mettle. Says Mr Shekhar Bajaj, The flagship company was steered by Rahulbhai, being 10 years older. There was no issue as far as the next generation was concerned. Rajiv and Sanjiv were older to the others. They being the eldest in the next generation with training in automotive engineering and MBAs are best suited to look after the interests of Bajaj Auto. Says Rahul Bajaj, chairman and managing director, I have the support of my four brothers and even my sister is with me, and I am sure we will come to an amicable solution by discussing the issue internally."

With Rahul as Chairman and managing director, Rajiv as the president, Sanjiv as the vice-president (finance), and Madhur as an executive director, Bajaj Auto has a fair share of family members at the top management level. In recent years, business family groups have also brought in outside professional talent at the top level. Says Harsh Goenka, chairman of the Rs 6500 crore RPG Enterprises, The RPG Group has been successful in bringing in professional talent to manage its businesses. There is a fair degree of decentralisation in major decision-making than most MNCs. This system has worked excellently for us and we have seen our companies benefitting a great deal.

Adds Dr John Ward, Wild Group Professor of Family Business at IMD, Switzerland, who is an authority on family business enterprises, India is going through a great transition. There are a large number of families experiencing with non-family executives. Family owners should play more of a governorial role and share the leadership which is happening more and more in India.

Dr Ward, also feels that the opening of markets and increased competition makes performing increasingly challenging for family businesses. As RPGs Harsh Goenka reasons, There are pressures and pulls of modern day business management which have impacted business families to some extent. There could be divergence of vision, strategies and way forward. Or it may simply arise from poor relationship. These issues are not insurmountable though. As Dr Ward sums up, Family businesses tend to pull together in times of difficulty rather than when the going is easy.

Clearly, the next few weeks will indicate how the Bajaj family manages the current issues that it is facing.