‘IPO isn?t the only answer to expansion plans’

In industry circles, the chairman and CEO of the $4 billion Avantha Group is known to be a bit of a recluse. Gautam Thapar seldom attends CII conferences and rarely speaks to the media. Unlike his peers, you would hardly find the 51-year old Thapar making forward-looking statements about his group. FE?s Diksha Dutta & Ronojoy Banerjee caught up with the Avantha patriarch in his central Delhi office, where he shared his vision for the group and his deep-seated angst concerning the education system. Thapar is also president of the All India Management Association (AIMA).

Why has the Avantha Group not got some of its newer business listed on the bourses yet?

Analysts have been long puzzled at the possible growth momentum that companies such as The Global Green and Avantha Technologies hold if they tap the IPO market. Do you agree with that view?

I do not see an IPO as the only answer to fund expansion plans. If you are growing from indigenous resources, you do not need to go to the market. So if you create businesses that are good and profitable, exceed the cost of initial capital and also give you good returns on equity, then there are always options for such businesses and an IPO is only one among many options. You might go for a joint venture with somebody or bring a minority strategic partner who looks at India in the long term and then grow the business.

The government is learnt to be in the final stages of allowing FDI in multi-brand retail. As Avantha already has a sound food processing business in Global Green, will you consider extending the business and possibly rope in a foreign partner and start your own retail operations?

It would be great news if the government allowed FDI in multi-brand retail retail. But our focus is on the supply chain and we do not want to get into retailing at present. Twenty five years from now, I might get into retail because the landscape will be different then. It is better to sit back sometimes and see how the landscape of a business turns out. You cannot jump into every new, fashionable business that comes in. One big fixed cost is the very high rentals. In our traditional businesses, we are doing well and are among the top performers in terms of market share and size. In the new businesses, we are doing well in profitability, if not scale.

So what?s the plan going forward? Will you look at consolidating your existing businesses or have you identified a new growth segment for Avantha?

Well, we have identified insurance as a growth driver for the group going forward. In this connection, we are going to enter life insurance business and hence we are looking for a partner with whom we can tie up. Honestly, we like the business as well. I am looking for businesses where you need management skills and where the entry is not dictated by regulatory potholes or licences or such hurdles. I am looking for businesses which are run by people or management and you compete on quality. You do not compete on licences, otherwise you will go back 30 years. This is a conscious design.

You will offer every kind of insurance service? How many potential partners are you currently talking to?

We would pretty much offer a wide gambit of services. But I am afraid at this stage I would not be able to comment beyond this, especially on the number of partners?whether it?s two or ten (Thapar laughs).

More than 50% of your employees are non-Indians. That?s quite a number. Doesn?t this have its own share of challenges because of cultural differences and so on?

Management talent is universal. It has simply nothing to do with nationality. Basically, 50% of our assets are not in India and thus the employees are not here. You buy companies abroad because of a strategy and add people. Most of the manufacturing talent is out of India, hence we had to hire from there. But this has its own share of challenges as well, as you pointed out. For instance, there is a massive time gap between India and, say, another European country where we have an operation.

Often, coordinating the same becomes a huge issue. So yes, it is quite a challenge, especially from a human resource point of view.

Many of the marquee old family business names in India are somewhat losing their relevance in comparison to the newer business families. Do you think this is an accurate assessment? If yes, what has led to this?

Market dynamics have completely changed over the last two and a half decades. For instance, you did not have so many players 25 years ago, FDI was very limited and markets were closed.

The entrepreneurs of today have found different sources of capital, which years ago were non-existent. But yes, there was a period in India?s economic turnaround when several opportunities were available. If you look at the maximum wealth creation in the 1990s, it has actually come out of the services industry?telecom, financial services, information technology, software, airlines, hospitality. When I look at the last four years by contrast, a big chunk of wealth was created in infrastructure and power. I think there are many business groups, not just us, but even the Tatas who went through a difficult period in the 1990s because the markets had changed, duties came down, competition entered. Some could retool and some could not. The ones that could not retool missed certain opportunities.

You are also closely connected with education since you also have your own schools. You are also the president of AIMA. How do you look up on the problem of fake management institutes in the country?

The problem is that India has a multiplicity of regulatory authorities. This is not logical. In order to create capacity, you have doled out licences to many post-graduate institutes and medical colleges, with no quality control. There is no focus on structure or transparency. Then you have different regulators and bodies that decide differently. So, once 10,000 students have got a degree, you can?t suddenly deny it to them. Honestly, it is a mess. The regulator should provide a route for these kind of anomalies to go one way or the other. If you want quality, you have to propose a very precise, time-bound way by which an institution has to move to a certain level. If you are a deemed university, you should be told that if in the next five years you follow certain steps, you will be a full university under the central government.

Your tenure as AIMA president is going to get over in September this year. How has this journey been?

It was a learning experience for me. It was very different from running a company. When I head an organisation, I take the decisions. But at AIMA?which is a society owned by everybody and a public service?everybody has different opinions. It has been a good experience. It is a great body. It is the only platform in the country that has everybody as members, including management processors, educators, local management associations, students and teachers. It has a very large panel. It is the only organisation that deals with every element in the management profession, from testing and education to research.