KK Modi eyes 51% in Godfrey Phillips

KK Modi eyes 51% in Godfrey Phillips

The KK Modi group is set to wrest majority control in cigarette maker Godfrey Phillips India (GPI) from American tobacco major Philip Morris as the Indian business house leads the company's charge into noncigarette segments such as beedi and chewing pan masala , potentially to the discomfort of the foreign partner.

GPI, a Rs 3,000-crore publicly-listed company, is a joint venture between the Modis and Philip Morris who each held 36% stake originally. However, changing equations, and the new diversification plans-led by the Indian promoter-saw the Modis pick up an additional 11% stake from the foreign partner last year, taking up their holding to 47%.

Modi, chairman of Modi group, told TOI that as per an agreement between the partners, he has the "right" to take up his holding to 51% by buying further into Philip Morris' holding to get a majority control of the company, India's second-biggest cigarette maker that sells the "Four Square" brand and also distributes the iconic Marlboro brand (from Philip Morris stable).

This would bring down the stake of Philip Morris to 21%. Modi said the market was currently "too hot" for buying the additional stake from Philip Morris. "Whenever the market will come down, we will buy. We have the freedom and the agreement to go to 51% and they have agreed." The scrip of GPI closed at Rs 2,370 on the Bombay Stock Exchange , down 1.3%. Modi said the idea is to give one promoter management control to freely manage operations. "There was a great (deal of) uncertainty, even though by agreement we had the management control. But by shareholding , we were sharing the management control with Philip Morris. So, Philip Morris agreed that it is better for one person to control, because now we are diversifying into many areas like beedis and chewing tobacco... which are not their forte."

Sources, however, said the American tobacco major was not very comfortable with Modi's plans to diversify in noncigarette businesses. However , it had to give in considering the strength and experience of the Indian partner and its reach in the market. Philip Morris officials did not comment on the story despite several attempts.

Modi said his group will invest over Rs 2,000 crore in the coming years for expansion, and a majority of this will be pumped into GPI to fund its diversification plans as well as for a new factory in Mumbai. The cigarette business was not enough to sustain his group's vision of achieving a 30% growth in revenues and margins every year, he said. "The cigarette business is not growing at that rate. To achieve 30% growth, we cannot go with cigarette alone." While Modi's sons Lalit (the former IPL commissioner ) and Samir are on the company's board, his granddaughter Priyal (his daugther Charu's daughter) is helping him with the beedi business.

The company's beedi business is under the brand "Sona" while in chewing pan masala , it has the brand "Pan Vilas" which was launched early last year in some markets of the country. Modi said the agreement with Philip Morris also stipulates that if and when he decides to sell his holding, the American company will have the first right to buy it. "Only if they cannot buy will we have the right to sell it to someone else."

Long Leap: From Setting up Websites to Big-ticket Embedded Solutions

STORIES of companies that perished when the dotcom bubble burst and those that survived the crisis with grit and innovation are now the stuff of entrepreneur lore. Chennai-based GoDB Tech is one such company that has reinvented itself successfully. Today, its success as a player to be counted in the service delivery applications in partnership with top companies such as Texas Instruments (TI) is a long leap for a company that was once building websites.

Though lesser-known than some of its counterparts, GoDB has managed to grow substantially and get contracts from multinational customers that use TI chips in their devices. Its embedded software business is less than a year old, but already the company is working on a partnership with Analog Devices, another major chip player. GoDB’s application works on chip platforms and the company rides on such partnerships to access a wide range of customers.

“Our goal is to reach as many customers as we can. The marketing costs are minimal since we are going through our partners. For example, TI introduces us to its clients and if the clients are convinced, they sign up with us,” said founder-director Mahavir P Chand.

The company had clocked revenues of Rs 1.5 crore in the first year (2000-01) itself, but many of its dotcom clients folded up soon, leaving the company with an uncertain future. Chand and his co-founders, Raja Raman and Ravi Kiran, had to look for a new opportunity to keep the company afloat. They had already developed expertise in the area of service delivery, which helps data updation and synchronisation of live websites. They sought to convert this into a platform that could be used by companies to capture data from field staff for supply chain management.

Initial revenues and a funding of Rs 3 crore from Intel in October 2001 saw it through the difficult years when the company was investing in product development without earning any revenues. The decision to build the platform had been a smart one, freeing the company from dependence on internet properties and giving it a toehold in the corporate segment. However, getting customers for this was proved to be tough.

GoDB Tech founders Raja Raman (sitting), Ravi Kiran (left) & Mahavir Chand

“There were times when we questioned the wisdom of it,” recollects Chand. In fact, 2003-04 was the only time Chand came close to considering chucking it all and going back to a job. But in the end, he and the other founders, decided to stick it out and the lucky break came soon in the form of a big order from Hindustan Lever (now Hindustan Unilever) in 2005. “Then, we knew we were home,” Chand said. Others like the ICICI group, which had placed small orders initially, also started coming back for more. Today, its enterprise customers include HDFC Bank, Tata AIG, Standard Chartered, Reliance Capital, ICICI and of course, Hindustan Unilever.

In 2005-06, the company took Kalyan Chakravarthy, who had successfully nurtured a business and sold it to Flextronics a few years earlier, as an advisor. Under Chakravarthy’s guidance, the company tweaked the application that was already being used on PDAs by Hindustan Unilever’s agents, and demonstrated it to TI. TI tested it and was quite happy to recommend it to one of its clients. From then on, the company’s embedded solutions grew to account a fourth of revenues, the enterprise segment accounting for the rest. Future revenues are expected to be split equally between the two businesses, Chand said.

Unlike many companies of that time, GoDB has diverged from the beaten track of building dotcom companies with an eye on quick valuations and sell-out opportunities. Its founders stayed patient even in the face of adversity. The company is now looking to scale up, given that embedded technology is spreading rapidly among mobile and computing devices.

Article Resource:
Author: N Shivapriya is the cheif editor in the Economic Times and the article appeared in one of their successful columns called "Starship Enterprise".