Modi 2.0 blazes Spice trail with buyouts, tie-ups

Written by Nikita Upadhyay | Nikita Upadhyay | Baiju Kalesh | Mumbai | Updated: Oct 24 2011, 12:06pm hrs
Chartered jets, Bentley cars, a penthouse abroad and bungalows in India Bhupendra Kumar Modi is no stranger to a colourful lifestyle. He is rich enough to splash his wealth from the sale of his mobile telephony business Spice Communications to Kumar Mangalam Birlas Idea Cellular for R2,700 crore in 2008.

But, behind this lifestyle and an acrimonious past with his partners and brothers, Modi, 50, is adding fresh spice to his business acumen in building Si2i, a new company which will make internet-ready cellphones for markets from Indonesia to Ivory Coast or i2i, make movies in Indian languages and later a production studio in Mumbai.

Target: $20 billion in 10 years

We have changed ourselves and are now building a new baby with a revenue target of $20 billion in 10 years, Modi told FE in an interview last week at his new corporate office painted white and purple.

With help from investment banker Edelweiss and consultant McKinsey, we decided to enter the new business which will be on the device side: Mobile internet. If we do well in this field, we can easily be $4-5 billion in India in 10 years but, if we go to i2i, then we can create a $20-billion company, he added.

Consultants say Modi is in the right business with a large market to capture, adding creating brand stickiness with the customer will be critical.

The Indian handset market is the fastest-growing in the world with low-cost phones accounting for almost 70% of all units sold, says Anshul Gupta, principal research analyst at Gartner, a telecom and software consulting firm. There are many players in this segment as it is easy to copy and entry barriers are low... It is becoming difficult to differentiate one product from the other, he added.

Modi will have to take on home-grown handset-makers like Micromax and Karbonn, who wrested share with cheaper products in less than three years from leaders like Finlands Nokia and South Koreas Samsung. Spice, with just 5% share, has to catch up fast with his two major rivals with a combined 40% share. The Finnish mobile handset maker is rethinking the way it makes and sells handsets and Samsung is investing $20 billion in new five fields from solar panels to batteries for electric cars for future growth.

Modi has yet another personal challenge at hand: To catch up with his family legacy be among 10 Indians in Forbes rich list. Today, we are at 49, says Modi. But, when my father died, we were among the top 5.

Acquire, partner to grow

S Mobility is cash-rich and has no debt. Modi has acquired companies in Indonesia, Singapore, Malaysia and Thailand and is hunting for more.

Between 2009 and 2011, he made a string of acquisitions. In 2009, he paid 60 million Singapore dollars to purchase MediaRing, a service provider for data and computing services, later re-branding it Spice i2i. A year later in March, Spice acquired a 65% stake in Malaysia's CSL Group for $25 million along with its smart phone brand Blueberry.

In December, he purchased Thailand's NewTel Corporation known for its WellcoM mobile handset brand for $22 million and in March this year, he purchased Indonesia's number one mobile handset seller maker Nexian for $175 million.

We are still in the process of acquiring companies in Africa and other countries, says Modi, who is rarely seen without his boater hat. Going by the i2i plan that we have, we will acquire more companies in next two years... We want to acquire local brands with distribution networks.

Investors are warming up to Modis new idea. In the past one year, S Mobility's market value has roughly trebled from Rs 856 crore to Rs 2,380 crore.

That is the way to go, says Abhishek Chauhan, senior consultant and lead Mobile-wireless, Information, communication, technology practice, South Asia and Middle East at consulting firm Frost& Sullivan. Rather than starting fresh, which might face government hurdles, it is better to acquire a well-established brand in that country and build up on its reach.

Apart from acquisitions, Modi, who fought with his brother VK Modi over Modi Rubber and former partners in the past, is now seeking new partners to grow. Did his fight with copier maker Xerox Corporation dent his image as a trusted partner

Only one person should take ownership, says Modi, a Buddhist convert now. We had no differences till the government allowed them to own 40% stake. The fight began after the government allowed foreign companies to hold majority control in their Indian ventures, he added. According to him, Xerox wanted to buy the company.

Such tussles are behind Modi, who wears a diamond ring with five religious symbols etched on it.

Taiwanese chip-maker Mediatek partnered Modi's value-added service arm Spice Digital and purchased a 10% stake for $20 million. Modi, in one stroke, got money and cheaper mobile chips from Shenzhen Tinno Mobile technology Corp, Mediatek's alliance partner, exclusively designed for i2i markets.

Product customisation and a good distribution network is key to success in African markets, says SN Rai co-founder and director at handset maker Lava International. Growing inorganically should have its scale advantage. The company sells handsets in India, Sri Lanka, Nepal and Bangladesh apart from Africa.

The Indian handset market is growing at a compounded annual growth rate (CAGR) of 30%. Currently, 42% handsets of smart phones sold are on the Android platform.

Earlier consumers went for brands, design, operating system and hardware, but now they want an Andriod phone with a good look and feel which is available with small brands at a fourth of the price of a branded phone. says Sandip Biswas, director at consulting firm Deloitte India.

Regions like Africa and Middle East have a huge growth opportunity for such players. Various tie-ups with other vendors and partnerships are helping them to have a wider reach, he added. One should be able to fill in the gaps that the local partner has and offer a value for money handset, says Chauhan of Frost & Sullivan.

Brands: Keys to success

Device makers are fighting for a share of the Rs 29,000-crore Indian handset market with cheaper, feature-packed products.

I am now focusing on ownership, brand and technology, says Modi who claims to work 18 hours a day between India and Singapore, which houses his innovation centre of 2500 employees to design handsets.

The challenge is to become a global brand. We have to work like a global brand and think like a 24-year old guy because that is my target segment, he added.

Success depends on how well you communicate the brand, spread awareness and offer better return on investment, says Chauhan of Frost & Sullivan. Modi realises this. The challenge is also to get the customer on your side, compete with global brands by giving consumers global brand quality at a lower price with local applications, says Modi.

Small handset makers are at par with any other big brand in terms of warranty, servicing, retail store presence, good promotions, discounts and visibility in major sports events, says Gupta of Gartner. So they are in the right direction.

Learning from mistakes

Modi, who once fought for control of Modi Rubber with his brothers, has learned his mistakes in owning and managing companies.

We were five brothers and our father had created four companies. says Modi. So, two brothers came in one company and issues started... I gave my brother my company shares free and took over the hospital trust, he added. According to him, during his father's time, the problem was that shares and management were not together.

Modi wants no more family fights.

I will take a back seat, says Modi. My kids will run the business. Dilip is the managing director of Si2i who will look after the customers and my daughter Divya, the chief financial officer, he added.

Modi has divided half of Rs 2,700 crore between his son Dilip and daughter Divya. I have given them shares and they can sell them any time, says Modi. The rest is used to build his new businesses, charity hospitals and university.

A family business is like a relay race where the baton is passed over from one generation to another, Prof Kavil Ramachandran, who teaches at Indian School of Business (ISB), Hyderabad told FE in an earlier interaction.

A clear road map is prepared for the person who is retiring about what he or she would do subsequently. The retiring person should redefine the portfolio of activities that he or she would do and add value to the growth of the organisation in the capacity of an advisor, if possible, he added. According to him, the process of transition should be worked out in advance so that the baton change could be smooth. His comments are not specific to this story.

Passion for new businesses

Apart from mobile internet phones, Modi has a passion for making Bollywood movies.

With the remaining Rs 1,300 crore I have, I am building a hospital in Delhi in my father's name, a university and a movie, says Modi, who will move into his new one bed room bungalow in Mumbai purchased and built with hundreds of crores.

I started the first dubbing in the country where we had tied up with Disney for their movie Lion King, which was launched in six languages, he added. I want to build a studio, get latest technologies and get into movie distribution. says Modi.

His plan is to get three dimensional technology or 3D, make movies and build a studio from the profit that movies gives him.

Demand for 3D content is hitting the roof, says Ramki, managing director at Prime Focus, a post production company which helped make Star Wars series.

Consultants agree on the growing demand for 3D movies in India. The Indian market is still raw for such technologies, says Jehil Thakkar, executive director, media and entertainment at audit and consulting firm KPMG India.

It is a good strategy to get into this space at this time.