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Bharti overtakes Tata in market cap, Mittal surprised

By Suveen K Sinha in New Delhi
January 05, 2009 08:31 IST

One day in July 2002, Sunil Bharti Mittal was in a rooftop meeting room at Mumbai's Oberoi hotel, in the midst of 80 or so journalists, to celebrate Airtel's launch in the city.

He tried to light an oil lamp with a candle, but somebody had put in too much oil. The wicks were soaked and refused to catch fire.

A little later, the speaker system failed when Mittal made the inaugural call to the chief minister. Unperturbed, Mittal merely said: "Things happen." Some time later, he told a journalist about the incident: "I concentrate on things that have a large impact."

It is with this focus on the big picture and an eagerness to get on with the job regardless, that Mittal, chairman and group CEO of Bharti Enterprises, has traversed the distance from the 25-employee cycle-crankshaft factory he set up in 1976 in Ludhiana to the second-largest market capitalisation of all business groups in the country.

The latest figures put him second only to Mukesh Ambani's group (Reliance Industries, Reliance Infra), and just ahead of the Tata group, a salt-to-software conglomerate known globally for its distinguished history, its high-profile acquisitions of recent years and the small car, Nano.

The Anil Ambani group is fourth.

It has helped that the top 20 business houses suffered a 65 per cent erosion in market cap in the carnage of 2008, while Bharti lost only 24.4 per cent. The Tata group lost nearly 62 per cent and Anil Ambani's ADAG over 73 per cent.

When we call Mittal to congratulate him, he responds with surprise. "I did not know...," he says slowly. "The focus on the market cap in our organisation is low… Tata has got Motors, Steel, TCS, Chemicals, Tea, Hotels… I'm surprised."

That he may be, but he is also quick to grasp the significance of the development. "In a country of a billion people, if you can be among the top 100, you should be happy. It means you have been significantly blessed," he says.

He attributes Bharti's rapid rise to its single-minded focus on telecommunications. Until about three years ago, it did not think of any other business. "We shunned the usual temptations of becoming a conglomerate by getting into too many sectors too soon. This helped us."

The bidding crasher: It seems inconceivable now, but Mittal was the big surprise when the first mobile phone licences were given out by the government in the early 1990s.

The country's economy had just opened up, but was still dominated by the old business houses, which frowned upon his name among the winners. Mittal was the outsider and it was, they thought, only a matter of time before he sold his licences to one of them.

He didn't. Instead, he bought companies and licences, and kept growing his telecom franchise while the others folded up as revenues fell woefully short of projections and high licence fees sucked out whatever money did come.

Statesman-like, Mittal convinced European telecom equipment maker Ericsson to supply Bharti's network on credit; he promised to pay "when the customers are happy". At the same time, he had the finger on the pulse of small shopkeepers and gave them little gifts -- free phone calls, silver coins -- to persuade them to push Airtel.

Is there anything he would do differently if he were to do it all over again? That gets Mittal thinking.

"When one has this spectacular success, one doesn't think whether one would have done it any other way. Still, if one has to think back, maybe we could have been a little more aggressive in acquisitions. In some cases, we were content with organic growth. But there are no regrets."

That's surprising coming from a man whose inorganic growth includes licences acquired in Kolkata, Chennai, Karnataka, Andhra Pradesh, Punjab, and Rajasthan.

In the first case, Mittal bought a rival, Spice, the mobile service provider in Kolkata, over a single weekend in 2001. He and his top managers worked 20-hour days negotiating.

"We finished the deal in 48 hours. Some of my people slept on the conference table," recalls Mittal.

From the first lot of Indian business groups that won mobile phone licences, he is the one true survivor. The Modis, Goenkas, Max India's Analjit Singh and BPL are no longer in this business.

The Ruias are, but theirs is more a Vodafone company. Tata has switched to a different technology platform.

The Aditya Birla Group has only recently really got into the game by taking control of Idea. The Ambanis are still operating their first licences, but they are on the margins of the GSM game.

"He sees the big picture, the small picture, and the long-term picture. He is also very purposeful and all times wants to get on with the job, or life for that matter," says Manoj Kohli, hand-picked by Mittal to be the executive head of the mobile phone business.

In the period 2001-03, the telecom industry was especially fractious. Everyone was fighting everyone else over the technology platform, limited mobility, the licence fee for new entrants, etc.

This was the period in which Mittal undertook rapid expansion. Amid the chaos, he could sense that the fourth cellular licences were really going cheap.

So he bought a bevy of them to acquire a pan-Indian presence, and also entered other areas like domestic long distance telephony.

In December 2003, Mittal cut short a holiday abroad to fly back to Delhi to attend a meeting of GSM operators. The government had just come out with a solution to resolve the dispute between GSM and CDMA operators on the issue of limited mobility.

The CDMA operators could get to offer full mobility by forking out the same amount that the GSM operators had paid in the fourth round of bidding and a penalty.

Most GSM companies wanted to reject the offer and continue to fight the battle in court, encouraged by the appellate authority chairman's strong stand against CDMA.

But there was one problem: Mittal would not join the club. He had become so big by then that the GSM lobby was left with no choice but to fall in line.

"The issue was one of level playing field so that the existing players' position would not get eroded," recalls Mittal. "Once the government decided to make the CDMA operators pay the licence fee and a penalty, we could compete with them in the market place.

At the end of the day, they were not coming without paying the entry ticket. We were ready to fight the technology battle. We were convinced that GSM was the superior technology. I was clear that GSM would eventually win."

A man of many parts: As Mittal has got on with the job, he has been through a string of strategic partners and investors -- British Telecom, Telecom Italia, Warburg Pincus, Vodafone, etc. SingTel is still there.

He has forged partnerships and parted ways, but has never been embroiled in any fracas with partners.

Mittal's associates say there is a healthy mutual respect between Bharti and its partners. At the same time, they are honest and transparent and do not paper over cracks.

In his early years of entrepreneurship, after Mittal had become big enough to be creditworthy, he made sure to carry a table tennis paddle when he visited his local banker. The manager loved to play, so Mittal, who was on his college team, would offer a game.

"There is a rule we follow, personally propounded by Sunil. When you get up from the negotiating table, both the sides must be smiling," says Kohli.

Mittal, in fact, makes two claims that few others in India can make. The first is that none of his partners lost money, and the second that if any of his erstwhile partners were to come back to India, it would first talk to him. "At the end of the day, it is all about logic. Either we make our point and convince you, or you make us see your logic.

There is no other secret. We stay on the straight and narrow. Many of my industry friends take so many shortcuts I wonder why they do it. The long-term implications are big," says Mittal.

Rivals say Mittal has been lucky. In the first round, he got only Delhi -- where the licence fee was next to nothing, as in all metros -- and Himachal Pradesh, where the licence fee was very low.

Rajeev Chandrasekhar, who was spearheading BPL's foray, got Mumbai, but also Maharashtra, Tamil Nadu and Kerala.

The latter three, being circles that had high licence fees, weighed him down. By the time the industry migrated to a revenue-sharing regime in 1999, many were tottering, while Mittal had built up a strong balance sheet, which he leveraged to expand.

For Mittal, though, it wasn't down to luck but Bharti's understanding of the telecom sector. Those who suffered in the circles suffered because they had bid beyond reasonable limits. "We understood this business. We had deep domain knowledge. For instance, in Punjab we bid Rs 400 crore or Rs 4 billion, but the licence eventually went for Rs 1,200 crore or Rs 12 billion. If our bids had won in the circles, we would still have been fine."

Beyond telecom: Bharti is no longer a one-trick pony. About three years ago, Mittal began to make moves that would take him away from the tag the media has bestowed on him: India's telecom czar.

An attempt to enter the infrastructure sector through airport modernisation projects got grounded when partner Changi pulled out of bidding at the last minute. A "farm-to-fork vision" took Bharti into farming, and a high-profile retail joint venture with Wal-Mart. He is already into insurance -- life and general -- and asset management.

The results so far have been nowhere close to the success in telecom, but Mittal is taking a five-year perspective of the new businesses. "All diversifications are on course," he says, and proceeds to quote facts.

The retail venture was to open 23 stores by December 2008; it finished with 21. This year will see more than 50 stores set up. There will be three cash-and-carry outfits this year, a few medium stores, and a few small ones. "Our pace is moderated by our plans; we are following our plans. We are not moving at breakneck speed, but that was never the plan. We are on course. You will be surprised by what we do in five years. Retail will be a serious effort," he says.

Bharti Axa Life Insurance is in its second full year of operation. A Johnny-come-lately, it is not in the top five, but Mittal says it will be a billion dollar company by the time it has done five years.

The asset management company will get into private equity. "Financial services will become an important business for us," he says. Food and agriculture, he says, are also on course with exports in full swing.

Mittal's attempt to acquire a global telecom footprint failed with the abortive bid to acquire South Africa's MTN. But he remains hopeful. "We remain focussed," he says.

"There are not too many moving targets. However, some valuations which were out of reckoning have now become reasonable."

Among the new businesses, some joint ventures may be listed in the times to come. "We are keenly awaiting liberalisation of foreign direct investment in retail. That will bring in more capital from Wal-Mart," he says.

Now that he is no longer shunning the conglomerate vision, does Mittal see himself overtaking Mukesh Ambani in market cap?

"We are not obsessed with market cap," he says. "If you are in the top 10, it's all about your industry, sector, the growth rate, and a lot left to chance.

There can be no comparison between us and Tata, with its automobiles, steel, tea, etc, or Mukesh's refinery and oil. They are different industries. Some of these may be undergoing a cyclical downturn.

Tomorrow they may be up and ours down. Our focus on the market cap, if at all, really has to be only with respect to the global telecom companies. Occasionally we would look at where we rank among them."

Suveen K Sinha in New Delhi
Source: source
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