Getting into an elevator at the Modi Tower in Delhi?s Nehru Place one starts to feel the onset of an important meeting. Umesh Modi?s office is one the eight floor and it is from here that he runs the Modi Group of companies, an eight company consumer and specialty goods focused conglomerate. On a temperate day in late October when the markets have dipped to their lowest point in the month, Modi chairman, president and CEO of Modi Group of Industries does not seem perturbed in the least. He puts it rather simply, ?We are not affected by either the stock market crash or the devaluation of the rupee because most of our businesses are privately owned which protects us from adverse movements in the former and in the case of the latter our foreign debt exposure is negligible except for a small Euro loan we took for our Bihar Sponge Iron business years ago?.
Modi admits that these decisions cannot be attributed to sheer smartness but are a reflection of lessons he learnt in the past and applied to the present, an ability which reveals itself as one of Modi?s main strengths.
He started his career in1972 as a 23-year-old chemical engineer from Banaras Hindu University at Modi Steel Mill in Modinagar under the tutelage of his father and has been focused ever since on growing the group.
As is the case with most family run businesses, Umesh Modi?s family is involved hands on with the business. His wife, Kum Kum Modi serves on the board of a few of the group companies. Of his four children his older son, 33-year-old Abhishek has followed his father?s footsteps in choosing chemical engineering as his stream during undergraduate studies and then got a MBA from Harvard Business School. Today he runs the Group?s Sugar and Distillery business. His daughters, Meghna and Himani have been involved with running the Modi Revlon and Modi Senator business. His youngest son, 17-year-old Jayesh is currently studying overseas and will most likely join the family business on completion.
Modi Group of Companies today is stable, self-sustainable and even successful but it hasn?t let Modi forget the old days. He recalls, ?In the 1970?s and 1980?s the group needed to be on the right side of the government as everything depended on the licensing game?.
The government?s logic for licensing according to Modi is that ?production needed to be optimised since excess would lead to imbalance between what the government?s perception was of demand and supply.? This is why the government exerted control while doling out licenses.
But what made Modi learn most of his lessons was the steel business he started in the 1980?s. Using non-coking coal to make scrap iron, the group founded the Bihar Sponge Iron Company in the 1980?s. Modi says his, conversation with the then ICICI chairman Nadkarni who later went on to join IDBI, encouraged him to get funding from foreign banks for the project. However the 1991 opening of the economy and the devaluation of the rupee impacted the company?s foreign debt. Modi recalls the rupee de-valuing from from Rs 7 to Rs 24 against the deutsche mark in 1991.
Additionally, because of the devaluation, steel prices went up by 40% and the government had to bring down import duty from 35% to 5% to stabilise prices. ?Unreliability of exchange rates? was exactly the lesson which has protected Modi today from the upheaval in the international financial markets and devaluation of the rupee. After the episode of the early 1990?s Modi stayed away from foreign funding and depended largely on internal cash flows to fund his businesses.
However, the opening up of the economy also gave Modi an opportunity to make a foray into the consumer goods industry. In 1993 Revlon came into India through a tie-up with Modi Mundipharma. Starting with Rs 8 crore revenue in 1995, today the company makes Rs 183 crore and is projected to grow to Rs 524 crore in the next five years. ?We can proudly claim to have grown the Revlon market in Sri Lanka and are also looking towards expanding in Pakistan and Bangladesh.?
Not forgetting his core businesses, in 1998, Modi revitalised his sugar company to create an energy efficient sugar plant which lowered the cost of preparing sugar. His philosophy through the 90?s and even now has been to adopt a low risk approach. ?I want to focus on profitability, low debt and low foreign exposure in terms of debt,? he says.
Modi reminisces that the 1980?s were days of nationalised banks, strong unions, socialist leanings and requirement to stay in the good books of the government. 1989 saw a split in the group between Modi and the brothers, something which was triggered by the, downturn in the textile industry which led to losses within one of their group companies ultimately leading to a dispute between the brothers and the nationalised banks. The nationalised banks led by RBI went on to ban the entire group because of the inability of one of the company?s to pay its outstandings.
Ever since, Modi?s approach to business has been largely conservative but courageous. He took the bold step of initiating joint ventures and alliances with European and American companies in the 1980?s when it was not as much the norm as it is today. Modi?s logic was simple, ?In order to build modern plants, have world-class partners and obtain a technology edge to succeed, the group needed to form alliances with overseas companies?.
Modi?s personal work ethic does not allow him to put himself before the organisation and he sees his role as a trustee of the organisation. It?s little surprise he expects the best from his employees. ?I expect sincerity from my people and once I have shared the strategy to be followed, I?m fairly hands-off in my approach.? He also prides himself on being a quick decision maker and if an idea is not working he does not keep trying to beat up on a dead horse idea. He personally spends his time strategising and expects this to be followed by strong execution.
In fact, it was ability that allowed Modi to recognise in early 80?s that pharma was the field of the future and went on to form Win Medicare in collaboration with Sterling Drug USA in 1982. Although the beginnings were humble, (a school was used as the first factory), the company progressed rapidly. In the early 1990?s, Modi enhanced his pharma practice focusing on specialty products through a 50:50 Joint Venture with privately held Mundipharma group. The track record speaks for itself, growing from Rs 67 crore in 1993 to Rs 421 crore in 2008.
Today, the Modi conglomerate stands at eight companies with cumulative revenues of Rs 1,800 to Rs 2,000 crore. The company?s debt exposure is to the tune of Rs 200 crore. Sugar, cosmetics, pharma are the main areas they are in now and are looking to enter the liquor market.
Umesh Modi personally reviews the profits and losses of all his businesses, a habit he picked up from his father. His father Rai Bahadur Modi, did this himself everyday at his steel plant as it reminded him and his people to focus on the value of the business in terms of money rather than product numbers. Needless to say, Modi?s role model for multiple reasons is his father not least of which are the latter?s disciplined drive, sense of accountability, quick decision making ability, his focus on strategy, implementation and open communication.
Umesh?s personal style is informal and astonishingly he is able to make do without a computer and his desk impressively has very little paper, a trait he attributes to his quick decision making ability. Modi, though a tough taskmaster, takes pride in the fact that he has had 200 people who have stayed loyal to him since 1974. He has braced the present day trend of layoffs by not conducting any mass retrenchments. ?I?ve been able to hold on to my people because of my group?s strategy of being a consistent paymaster although not the highest paymaster,? he explains.
The reason Umesh is able to wear his successes today on his sleeve is because he recollects tougher times like the time in 1993 when he made the decision to close his 2,600-people steel mill. ?It was by far the most difficult business decision I have made but I had to, because the mill was unable to function cohesively,? he admits. The redeeming element of this incident says Modi was that 500 people from the steel plant got replaced in other businesses, and some at the same level and salary such as the operations manager at the steel plant came over as the Revlon operations manager.