RNI No.35850/80; Reg. No. MH/MR/South-82/2012-14 TN/CH(C)250/2012-14; Published on: Every alternate Monday; Posted at Patrika Channel Sorting office, Mumbai-400001 on every alternate Monday-Tuesday
January 20-February 2, 2014
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Sowing seeds of growth Adventz group targets `30,000 crore over the next five years
Akshay Poddar Executive Director, Zuari Agro Chemicals
Saroj Poddar Chairman, Adventz group
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Contents
B u s i n e s s I n d i a u t h e m ag a z i n e o f t h e c o r p o r at e wo r l d
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No. 936
sajal bose
COVER FEATURE 38 Make way for change The Adventz group aims to become a $5 billion group through transformational changes across sectors
CO V ER PHOTOGRAPH BY SA J AL BOSE
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F O C U S
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CO R P O R AT E
RANBAXY
TATA CHEMICALS
R E P O R T S
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56 After the buyout of Ranbaxy, the Japanese company Daiichi Sankyo is destroying its value 62
Tata Chemicals, the chemical, fertiliser and consumer products behemoth, is strategising growth with a human touch RS SOFTWARE 66 This it firm is a niche player in the emerging e-payment industry u
NELP yelp 46 Lack of clear policy framework may dampen bidder enthusiasm
MERGERS & ACQUISITIONS
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76 French Lactalis plans to acquire Tirumala Milk for $275 million
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B u s i n e s s I n d i a u t h e m ag a z i n e o f t h e c o r p o r at e wo r l d
Make over at Adventz The Adventz group aims to become a $5 billion group by 2018 sajal bose
The Poddars: Jyotsna and Saroj, with son Akshay u 38 u
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n Indian conglomerate partnered by world leaders, the Saroj Poddar (67)led Adventz group has global ambitions. After playing a role in India’s economic growth and prosperity the group is all set to usher in transformational changes to ensure that it continues to remain meaningful in the fast changing business environment. One of the few major groups still headquartered in Kolkata, Adventz has a significant presence in agriculture, engineering and infrastructure, real estate, consumer durables and services. It is now deepening its engagement with consumers through new initiatives. The newly christened Adventz group, brought together under one corporate umbrella, comprises 23 companies in various verticals. It is a major producer of a wide range of complex fertilisers and other agricultural inputs such as seeds, pesticides, micro-nutrients and specialty fertilisers. Another major vertical is modern, new generation freight wagons of which it is the largest manufacturer in the private sector. The group has engineering expertise and offers technical consultancy, project management and contracting services to chemical, fertiliser, oil & gas, petrochemical, power and other infrastructure projects. Adventz, has also recently ventured into real estate and aims to create quality affordable homes and office spaces. Zuari Infraworld India Limited, under which its real estate business runs, is likely to touch a top line of `8,000 crore by 2018, making it the largest vertical outside the fertiliser business. “We will be the second biggest group entity in the next five years, with a land bank in excess of 5,000 acres spread across the country and with planned investments of `4,000 crore in the real estate market,�
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says Aloke Banerjee, md, real estate arm, Adventz. Its landmark residential-cum-commercial project, located near Mysore, is nearing completion. In the consumer durables segment, the group makes ready-to-assemble furniture and has a complete range of fittings and hardware to cater to all three segments of furniture manufacturing – office, residential and kitchen & bath. It also operates Stylespa – India’s largest retail furniture chain. Poddar has had to shift gears in the last few years. He had formerly invested in a number of companies such as Gillette, which he brought to India in 1987. Always known as the man who brought Gillette to India but choosing to keep a low profile, Poddar came into the limelight following the death of his father-in-law K.K. Birla, who had only three daughters. Thus, his wife Jyotsna, Birla’s second daughter, inherited a number of companies, most significantly Zuari, which he is now actively managing. Poddar’s father Badri Prasad Poddar was originally involved in the automobile and real estate industries and was on the board of Shaw Wallace in its heydays. They also set up a spinning mill in 1960 under Poddar Projects. “My first major project was Gillette, which I started working on from my school days, as I wanted to bring them to India. It was my first venture and is still close to my heart. We were also involved with the sewing machine manufacturing company Singer, which I took over as chairman from Vijay Mallya’s father. It was a joint venture to manufacture sewing machines in India. Later, our family business expanded to tea, jute,
Banerjee: planned investments
and textile mills, and my five brothers and I set up a number of projects all over the country,” says Poddar, adding that they were also the country’s biggest coal miners before nationalisation of the sector in 1971. After the Poddar family split, Saroj Poddar got Gillette exclusively. “I also got involved in a mini-steel plant called Pench Steel in Calcutta, which I eventually sold off. Thereafter, I got fully involved with Gillette, actively managing it. I also got into a joint venture with Duracell (long life alkaline batteries), which ultimately Gillette acquired. Gillette India today comprises blades, razors, portable power, oral care and personal care products,” says Poddar, who has retained a 4.49 per cent stake in the company, after divesting 7.9 per cent in favour of the parent company, which is now part of p&g globally. “On 9 January, Saroj
Poddar had his last meeting as chairman of the board of directors of Gillette India Ltd. I want to thank him for his tremendous contributions to growing the Gillette business in India from the beginning, 44 years ago, into the vibrant business it is today. I want to especially recognise his support and partnership in finding a good solution to the sebi requirement with regards to the jv shareholding structure and promise to care of his legacy,” says A.G. Lafley, chairman of the board & executive president, p&g Worldwide. Poddar then started a company to make Indian furniture, the only ready-to-assemble furniture at that point of time in India, in collaboration with Gautier of France. “In my own sphere, I had Gillette, Pench, furniture and another joint venture with Hettich of Germany, a 50:50 jv, which is a phenomenal success today,” he says. Family legacy K.K. Birla, who had three daughters and no sons, divided his empire amongst his daughters in such a way that Poddar inherited Zuari and TexMaco. “I deem it a privilege that the responsibility of handling these public entities was entrusted to me by Mr. Birla. The Zuari group and the Texmaco group together represent the twin pillars of a remarkable entrepreneurial vision – the vision of the late K.K. Birla, who dreamt of a strong and resurgent India, which would occupy a proud place in the family of nations.” Poddar describes Birla as an extremely systematic and meticulous man. “Today, after his death, there
ADVENTZ GROUP COMPANIES
Agriculture Engineering & Infrastructure Zuari Agro Chemicals Texmaco Infra & Holdings Paradeep Phosphates Texmaco Rail & Engineering Zuari Rotem Speciality Fertilisers Texmaco UGL Rail Zuari Maroc Phosphates Simon India Zuari Fertilisers & Chemicals Zuari Indian Oil-tanking Gobind Sugar Mills
Emerging lifestyles Zuari Infraworld India Indian Furniture Products Hettich India Style Spa Furniture
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Services Zuari Investments Zuari Management Services Adventz Investments & Holdings Adventz Securities Enterprises Adventz Industries India Lionel India Zuari Global
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Maheshwari: organic growth plan
was no confusion or bitterness in the family. Whatever was decided by him was well-accepted by every single person and, according to me, this was a tribute to his foresight and wisdom.” “That vision has spawned a host of diverse enterprises in our group, which span key economic sectors. However, businesses today are being buffeted by major winds of change. In such an environment, mere incremental change will not suffice. Organisations have to radically transform themselves to meet these challenges. We therefore recently repositioned the group under a unified banner ‘Adventz’. Earlier, the group companies were operating in separate envelopes without a unified vision. We will seek to leverage the power of the group’s diversity in terms of knowledge, best practices and technological excellence to effect genuine and exponential progress in the sectors that we operate in, not only to positively impact India’s development and progress but also to emerge as a vibrant global brand,” says Poddar. Saroj Poddar has also been chairman of a number of foreign companies such as gec, Areva, Avery – but did not have any equity stake
in them. “Even today, I am chairman, Zuari Cement, which is completely owned by Italcement. I have moved from investing to gradually managing my own businesses, but it is not that I only used to sit in on board meetings as an investor,” laughs Poddar. Acquisitions Adventz has lately been in the news for a number of acquisitions. “The acquisition of Kalindee has been sealed and we already hold 40 per cent. Texmaco has a majority stake now and Kalindee Rail Nirman is a part of the Adventz group,” says Ramesh Maheshwari, md, Texmaco.
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“We have finalised another partnership with ugl of Austalia, which will help Texmaco move from manufacturing only wagons to value-added products. There are talks of a partnership with Tovax of France for leasing and another joint venture with a leading company from the east for coach and emu coach-making. We are also in talks with another leading global manufacturer for higher value railway products with the most advanced technology,” says Poddar. Texmaco has four plants in Bengal: Belgharia for casting equipment; Agarpara for wagon building works; a new coach factory in Sodepur for making emu coaches; and one in Panihati for heavy equipment for dams and hydel power projects. “Our new jv with ugl of Australia – Texmaco ugl Pvt Ltd – has commissioned a new factory in Belgharia, which is complete and equipped with the latest machines. We will make fabricated locomotives and wagon parts for supply in Australia and India and this is a part of our organic growth plan,” says Maheshwari. Zuari is looking at a major upgradation of their Goa project to add capacity to the phosphate facilities. The company has entered into a partnership with Mitsubishi in Peru for rock phosphate. “We are now obliged to buy rock from Peru. To use this rock, we have commenced setting up a large `5,000 crore project in Ras-al-Khaimah (in the UAE),” says Poddar, adding that major expansions are underway in Paradeep Phosphates too. The group plans to take the turnover to $5 billion over the next five years through organic as well as 70
Share price (`)
Texmaco Rail 67
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Hettich Adventz started commercial operations with Hettich in 2000. “We started at a moderate level and compounded a growth of about 30 per cent in the last five years. Today, we are the market leaders with a pan-India presence and a portfolio of over 10,000 products. This year, we will become the largest subsidiary of Hettich Worldwide and will close at `375 crore,” says Anil Goel, md, Hettich India. Hettich has also commissioned India’s first plant (`500-600 crore) to manufacture their products in the country, which will come up in Baroda this year, and both Adventz and the parent company Hettich will share the costs. Poddar has one daughter (married) and one son Akshay (37), who has been actively involved in the group since 2000. Though he is involved with all verticals, he looks after Paradeep Phosphates and now the real estate business, Adventz’s newest venture. “For us, real estate is important, as it has the potential to be a big business. We have been actively involved in this sector for the last two years. It is expected to grow immensely over the next five to seven years. In India, a developing market, real estate has always been attractive, as it has the potential to give good returns. This sector will help us diversify into other businesses as well. We have projects
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inorganic growth. “We have plans of backward integration, which will lead to some amount of forward integration as well, such as a million tonne phosphatic fertiliser plant in Ras-alKhaimah, as well as a half million tonne phosphoric acid plant in the same location. We have also tied-up with Mitsibushi for phosphate rock in Peru, as that is a fertiliser mineral not available in India. So, all this, along with Texmaco’s partnership with ugl Australia, optimisation of the ppl plant at Goa via an ongoing `2,000 crore project, expansion of the recently acquired Kalindee Rail Nirman and plans of a major urea facility will definitely lead to an increase in our turnover and we should comfortably be looking at $5 billion over the next five years.”
Krishnan: urea policy is key
in Delhi, Karnataka (Mysore and Vrindavan) and Goa and are actively looking into bringing something to Calcutta,” says Akshay, adding that all the group companies have immense potential and huge growth opportunities, which he wants to pursue. “We have an open mind when it comes to acquisitions, as all our companies are profit-driven,” says Akshay. “We also believe in getting the best people for all our businesses as we are a professionally managed company. All our subsidiaries are actively managed by appropriate professionals.” Akshay is married and has two small children. Zuari Agrochemicals was set up in the late 1960s, early 1970s, as a joint venture between the Birlas and US Steel Corp. This plant, commissioned
in 1974, was built in Goa at a cost of `50-60 crore. Another plant was added in Goa in 1984-85, by which time capacity had reached a million tonnes. Zuari went about looking for expansion in the mid-1980s after establishing existing operations and got the licence for a new plant in Chambal. This project was completed in 1993 and was a major expansion. “Major changes happened after 1991-92, when the government was looking at subsidies,” says Krishnan, md, Zuari Agrochemicals. “We also wanted to diversify and took over a cement plant and expanded it, then did a joint venture with Italcement and further expanded capacity by buying Vishnu Cement. We exited this venture in 2008 with handsome gains. In 2002, we bid for Paradeep Phosphates Limited (ppl), which was being offered under the nda’s divestment programme. The listed company, which was bought for about `150 crore, has a turnover of `5,000 crore today. It was a loss-making company, which we converted into a profit-making one, with the same management team and, today, it is a success story. And, we still hold 80 per cent of the company. When we exited cement, we knew we wanted to aggressively invest in fertilisers and phosphates and also look at backward integration.” “ppl was set up in 1982 and was a sick company when we purchased it, along with Moroccan partners. It had a `700 crore carry-forward loss. We turned the company around and it was making profits by 2005. We wiped off all losses by 2009-10. The way we were able to achieve this was by not throwing out existing employees, but instead taking their help. We brought a lot of brand image of the group and today we are the third largest fertiliser
Financials of listed entites
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Company
Sales FY13 Zuari Agro Chemicals 7,889 Texmaco Rail* 829 Zuari Global+ 398 Kalindee Rail & Nirman* 257 Texmaco Infrastructure@ 18
Sales Change Net profit Net profit Change EPS (`) FY12 (%) FY13 FY12 (%) FY13 8,233 -4 64 164 -61 5.38 767 8 94 93 1 5.18 1,877 -79 16 -218 -107 15.29 244 5 8 782 -99 6.53 17 10 44 47 -6 3.47
Consolidated figures. *Standalones. + Post restructuring. @Includes shares of profits from associates
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Poor market valuation
International was acquired in 2001. Initiatives into it and home furniture were also undertaken.
Notwithstanding the various initiatives taken by K.K. Birla during his lifetime and Saroj Poddar thereafter, the Zuari group never got the valuation it deserved from the markets. Despite its various transformation initiatives it was still clubbed with the old economy groups. Zuari Agro Chemicals has a market cap of just `626 crore and Zuari Global a market cap of a little over `200 crore. Together they are valued at under `850 crore. Both the Zuari group companies, as also Texmaco, are dependent on the government for growth. And that is one of the reasons, according to analysts, for poor discounting. Analysts hope that Saroj Poddar’s initiatives to get deeper into the seed business as also consumer facing business could change that perception. Property development could also be a game changer for the group and result in better valuation. The challenge will be to change investor perceptions. u
modernisation of its Goa plant. “We went from traditional naphtha-based manufacturing to gas-based manufacturing. We also looked into opportunities to acquire phosphate mines and looked at Peru, did a jv with Mitsubishi. Moreover, at Paradeep, we are doubling capacity to four million tonnes and setting up a new plant. By the second quarter of 2014, we expect to realise the full potential of what we have done. We are also closely looking at ammonia, which will be our new focus area. Meanwhile, when we looked at urea, we picked up a 6 per cent stake in Nagarjuna Fertilizers and a 16.5 per cent stake in Mangalore Chemicals, where we would rather do a bilateral settlement, with Vijay Mallya, than a hostile bid. We have long-term associations with global exporters and in India the east and south-west parts of the country are key states,” says Krishnan. Chambal Fertilisers Ltd, another company owned by K.K. Birla, is now evenly divided among his three sonsin-law, apart from what Zuari already held (14 per cent). “Chambal is India’s largest private sector urea producer. It is an allied business and we mostly cover the entire country for fertilisers
through ppl (East), Chambal (North) and Zuari (West and South),” says Poddar who is chairman at Chambal although his brothers-in-law have board representation as well. Zuari is actively looking for investments abroad and their Ras-alKhaimah project is at an advanced stage. Meanwhile, they reorganised the companies between manufacturing companies under Zuari Agrochemicals and investment companies under Zuari Global. The first real estate project is coming up in Mysore – three million sq ft of residential development of which the first phase is over and the second one has been launched. “This project is encouraging in terms of response. Now, we want to make use of our surplus land bank and have already launched projects in Delhi, Goa, etc,” says Krishnan, adding that this new vertical holds immense potential, the turnover of which will be `150 crore in FY14, and likely to jump up quickly. “We did not go around buying land as we had a land bank but did not want to sell plain land. So, we decided to tap into the real estate sector and the operations for this are headquartered in Bangalore. We initially looked at
The stock market still perceives Adventz to be largely an old economy group
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rowth through acquisition has been a way of life for the K.K. Birla group. Dr Krishna Kumar Birla in one of his rare interviews to Business India in 2002 had stated that the group was looking to acquire stakes in psus which were in the process of being disinvested. “We are also looking at investing in setting up a fertiliser unit abroad.” Zuari along with Chambal Fertilisers was one of the largest fertiliser groups in the country. It ventured into cement by acquiring Shri Vishnu Cements. Zuari Cement was later formed by transferring this unit along with the cement division of Texmaco, acquired earlier. It entered the finance sector by acquiring itc Classic Home Finance (later christened Birla Home Finance Limited). Green Tech Seeds
producer after Coromandel and ifco, with a presence in 11-12 states,” says S.S. Nandurdikar, md, ppl & Simon India Limited, who has been with the group since 1998. Expanding capacity Simon India Limited (sil) is a turnkey project executor of highly specialised engineering projects and it has recently completed a number of projects abroad. sil has a turnover of `160 crore and was originally set up as a 50:50 jv with Simon group, UK. ppl also exports some of its products to Nepal and Bangladesh, where it has an excellent brand image. “We produce 1.2 million tonnes of fertilisers per annum and we will be expanding capacity to add another 1.5 million tonnes, by adding a sulphuric acid plant. Another 2 million tonnes will then be added. ifc of Washington has sanctioned us $50 million for this expansion. We will also be looking at an ammonia and urea plant,” says Nandurdikar, adding that they will also consider backward integration, if they get the opportunity as many countries don’t currently allow mining of phosphate rock. Since 2007, Zuari started the
Low Valuation Marlet cap (` crore)
634
Zuari Agro
202
Zuari Global
309
Texmaco Rail Texmaco Infra
139
Kalindee Rail 120
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Market Capital Corommandel International GSFC
6,810 2,103
Chambal* 1,620 Fertilisers GNFC 1,136 Deepak Fertilisers 909 Zuari Agro Chemicals
634
*Group company with Zuari being a 15 equal partner with other groups
(` crore)
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sezs but then realised the vast potential beyond that. There are no corporate brands in this sector; so, there is immense scope,” says Akshay. The entire group has a turnover of `18,000 crore, with about `12,000 crore coming from the fertiliser vertical (Zuari, Chambal, and Paradeep). The group has begun backward integration as well in terms of both rock and acid, which they need as raw materials. “We will further our ammonia capacity globally and our Peru and Ras-al-Khaimah projects are underway. As far as forward integration is concerned, we believe in market expansions. We have also started looking at corporate farming – telling farmers about cost-effective ways of farming to double his income,” says Krishnan. A urea policy is to be announced soon which Krishnan believes will be key for them. “There will be significant opportunities, if this happens as, right now, urea is too controlled in terms of import. Currently, only the government imports. If this opens up, we will have great opportunity,” he says, adding that the fertiliser sector is also not completely opened up as nobody is allowed to import and export freely – and India has a shortage of materials, particularly gas, for fertilisers. The Zuari India Oil Tanking Co has also thrown huge potential for the state of Goa, where the facility is. “We are getting bp, hc, etc, as customers,” says Krishnan. “We’ve grown with a lot of partnerships and internal accruals. We have worked really well with jvs such as Simon India, Hettich and Gillette,
Nandurdikar: brand image
where Saroj Poddar is still promoter chairman. Things have grown significantly since we took over Mr Birla’s companies in 2008 and real estate, Paradeep, Peru, Ras-al-Khaimah – these all belong to Saroj Poddar’s era,” says Krishnan. “We have known Saroj Poddar since the Gillette acquisition in 2005 and are impressed with his professional approach towards working with multi-national companies. As chairman, he ran the board with the highest levels of rigour while, at the same time, entrusting the management to make business choices to drive shareholder value-creation. Having a deep understanding of the macro-economic environment, he played a key role in providing strategic guidance. His straight-forward attitude and his focus on creating an open and trusting environment, has made him a highly respected business leader.” says Shantanu Khosla, current managing director, Gillette India. “I have been working very closely with Saroj Poddar in my capacity as the managing director of Gillette for over six years. It was a great learning experience for me. He has all the qualities of a great leader – his respect for people, his entrepreneurial and practical approach in decision making, finding simple solutions for the most complex problems and above all his humility are all qualities that come u 43 u
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naturally to him,” says Zubair Ahmed, md, gsk ch, India subcontinent. New initiative Stylespa is now India’s largest furniture retail chain. It came into being in 1998, when the erstwhile K.K. Birla group got into discussions with Gautier, a French company, which was manufacturing modern furniture. “At that point in time, when the collaboration took place, the base was not only the interest of the Indian market but also India becoming a manufacturing hub for Gautier Global,” says Jairath, md, Stylespa. A new manufacturing complex was set up in Chennai in 1998 and Gautier India was launched. “Operations started out of Chennai by testing the Indian market through some projects. However, after four to five years, volumes didn’t pick up and there was a certain amount of strain. Eventually the venture matured and, after the exit of Gautier of France, two companies emerged – ifpl (a manufacturing entity with Stylespa as the distributor) and spfl (the new retail arm of the entity). Thereafter, the operations moved into the amalgamation of the two companies running the business and the focus shifted entirely to the domestic market in a big way, along with exports for some players such as Walmart,” says Jairath. The response towards Stylespa has been good as the quality is high, feels Akshay. “We have the largest manufacturing unit in India and 115 retail outlets spread across the country in 65 cities. There is quality control for all our products and there are only a few organised players in this sector. Perhaps Godrej is the only one but they are mainly into office systems,” he says. “About six years back, there was a thought process that the channel side of the business (selling furniture through channel distributors too, instead of just from their own/ franchise stores) should be tapped – so we test-marketed impulse furniture (which is bought on an impulse), computer furniture, etc, which has now become big – we now need to use our capacity and serve the distribution market. The two segments
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– Stylespa serves b2c retail consumer and Zuari is a value segment serving the distribution market,” says Jairath. Stylespa has also started looking at the institutional segment. Three years back, Stylespa wanted to expand further and decided to collaborate with two Italian brands to establish their stores in India. “Chateau D’ax and Milano Design were in the luxury retail segment and we opened five stores for them. But they were too niche and the volumes were limited, so we exited this year,” says Jairath. The kitchen segment has also become important for the company. There is high growth in India in this sector and players are few and small. “No one has national ambition and this requires techno expertise. We had this expertise because of ifpl and decided to utilise this in our kitchens portfolio. We now have a kitchens division separately,” says Jairath, adding that they have done a lot of business analysis in the last year to look at growth segments and have decided upon significant modernisation of projects. “We have set up a modernisation team and will go market by market and execute the brand and product mix to contemporarise the business,” he says. Jairath feels Stylespa has lived out its longevity period in the last 15 years. “Now is the time to change with a five-year perspective. We are looking at new retail formats – home and
B u s i n e s s I n d i a u t h e m ag a z i n e o f t h e c o r p o r at e wo r l d
jairath: time for a change
kitchen formats integrated together but in an optimum way. Our existing formats will be converted into modern retail environments with a new product mix. We are also looking at being more solutions-oriented. Stylespa has already started in the digital e-commerce market and we have multiple channel tie-ups with companies such as Zensaar and Snapdeal. A dedicated Stylespa e-commerce initiative is to be launched over the next couple of months,” he says. Stylespa is not just present in metros but also in Tier I, II and III cities – where few players have tried to penetrate. “We have over 800 dealers in u 44 u
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130 towns and we want to leverage this penetration pan-India. Our combined Stylespa and Zuari furniture turnover will touch `250 crore in 2013-14 and we are looking at doubling the turnover over the next three years.” Poddar has come a long way from being an investor and low-profile yet astute businessman to being the owner of one of the largest conglomerates of India. Not stopping at what they currently own and run, Adventz’s plunge into the real estate market shows their zest towards continuing to build new businesses and enter industries which they feel have potential in the near future. As a concept, Adventz’s strategy is to enter new lower risk businesses such as real estate, furniture and seeds as their flagship businesses of fertilisers and wagons are more government-influenced. But these businesses are more likely to evolve over the years as policies such as the urea policy are bound to change for the better. “What we see as a limiting factor today, might prove differently for us in the future,” says Poddar. Poddar, who works five days a week and believes in spending quality leisure time over the week-end, is an avid art collector. Often called a conservative industrialist, time will only tell what new tags he earns, once the group’s latest sunrise sector – the huge real estate arm – takes off. u SALONI J HUN J HUNWALLA