Prakash Chhabria has taken his father's legacy to a new level by turning a commodity-based business into a consumer-facing one
A look-alike of superstar Rajinikanth strides onto a dusty cricket ground, clad in a traditional lungi, armed with a solid pipe instead of a cricket bat. Requiring an impossible 60 runs to win off the last ball, the actor exhorts several players to bowl at him simultaneously. Brandishing the pipe like a sword, he dispatches the deliveries hurled at him over the boundary ropes and wins the match, obviously, emphatically yelling in classic Rajinikanth fashion: “This is the leader’s style to bring a miracle, let me remind it.”
This was the television advertisement for one of Finolex Industries’ core products—PVC (polyvinyl chloride) pipes, used extensively in agriculture and construction. Conceptualised by its executive chairman Prakash Chhabria, it aimed to ride a cricket-crazy wave when local team Pune Warriors made its debut in the Indian Premier League 2011. (The franchise was terminated by the BCCI in October 2013 over payment defaults.)
Chhabria is not an advertising guru. The 50-year-old is just an astute businessman who seems to have identified a successful model—a consumer-facing approach—for his pipe-manufacturing business that has attracted the attention of big fund managers and investors in India. In just a few years, Finolex Industries has shifted from being a commodities-linked PVC resin maker to becoming a value-added pipes and fittings manufacturer, with a clear focus on the retail segment and expansion plans to far-flung parts of India, where irrigation and housing needs continue to grow.
In 2012, he took charge as executive chairman from his father Pralhad Chhabria (84), and is eager for people to understand what he does. During the course of an interview with Forbes India, Chhabria picks up a marker, quickly draws two blocks to indicate segments of his businesses—resin and pipes—on a large board in his conference room. He then sketches water flowing through a range of pipes and fittings. After that, Chhabria pens the map of the country, pointing to where he wants to expand, from Finolex’s traditionally strong markets of western and southern India to the eastern and north-eastern parts.
Till 2008, Chhabria was concentrating on resins, a raw material for pipes, but then decided to go to the front end. “Finolex was predominantly a resin producer and seller. But we soon realised that growth and scalability lay in the finished product. The dimaag ka kick [spur to the brain] comes from the pipes segment, which is the bigger market,” Chhabria told Forbes India at his factory in Chinchwad, the north-western neighbour of Pune city.
The marketing push aside, Chhabria also innovated on the payments system with the dealers. Finolex has become one of the few Indian firms in the pipes business to get advance payments, which means it does not operate on credit. This keeps the company’s working capital low and returns high, analysts say. “This is a unique case where a company created a brand out of a commodity business,” says Nimesh Shah, co-founder of Enam Securities. Typically, advance payments are seen in the FMCG and two-wheeler businesses where companies such as Hindustan Unilever and Hero MotoCorp command a high premium for their brands.
For a company making essential but unglamourous products such as pipes and fittings, the buzz around its business is both unusual and noticeable. The Finolex Industries stock has caught the investors’ fancy with some of the major mutual funds buying it for their midcap funds. Over the last 13 months, the share price has moved up by 154 percent at a time when the BSE index returned only 10 percent.
A Partitioned Childhood
Like many manufacturing businesses that emerged during India’s independence, Finolex has a slightly divergent beginning. The Chhabrias, a Sindhi entrepreneurial family, lived in Karachi prior to Partition. Pralhad Chhabria was forced to start working in his early teens at a small cloth shop there in the 1940s, after the family lost much of its ancestral wealth to huge financial losses in the commodity markets.
The senior Chhabria had worked his way up the hard way, from a cleaner at a wholesale cloth shop to a collection agent. In 1945, the entire family, including Pralhad who had just six rupees in his pocket, left Pakistan for Bombay to make a fresh start.
After initial forays into small-time businesses, Pralhad, with younger brother Kishan, decided to shift to Pune and set up a trading firm in electrical accessories. That was the short-term plan—they were both eager for bigger goals. “During the day I was busy working, respected by customers and suppliers, high quality standards and my sincerity. But at night, I would return home and once again be the child whose opinion was disregarded [by family elders]. My mind was constantly searching for options,” Pralhad recounts in his autobiography There’s No Such Thing as a Self-made Man.
At the ground level, the bullishness is clearly long-standing. But it is only over the last one year that investors began to gain confidence in Finolex. Since it imports its basic raw material—ethylene dichloride, vinyl chloride monomer and ethylene—it needs to take a significant amount of forex exposure. In 2007, it bought structured derivatives and suffered losses, which hit its balance sheet. Shah says Finolex Industries incurred losses of Rs 450 crore over the last six years, of which Rs 180 crore was due to derivative transactions.
(This story appears in the 02 May, 2014 issue of Forbes India. To visit our Archives, click here.)