Ten stories of businesses that made money in sectors that were never on anyone's radar
Mick Jagger, the only surviving dinosaur from the Jurassic period, said that he became interested in cricket when he watched a young Dennis Lillee tear into bowl. Business is less a spectator sport and more a narrative. But how do you figure out who is the big story? Only a few entrepreneurs manage to make it big. Those manage to grow big create wealth for themselves, their shareholders, their employees and suppliers.
Most entrepreneurs in Forbes India’s “hidden gems” list fit the bill. They make their money in businesses as varied as coal tar pitch, cooling solutions, water desalination, building truck bodies and even water treatment. They overcome adversity. Most are unlisted companies who will go public some time. There are a few that are listed but they are still small and have growth left in their sails.
Perhaps the most critical task for us was identifying these companies. We decided to use a surrogate way. We decided to follow the moneymen. We pored over a list of 800 deals private equity companies had done over the last four years and looked for companies seeing a sharp rise in sales, profits and valuation.
Then we did the taste test. A few discreet calls to a few private equity investors that have made some serious money told us that the companies in our list were thought of highly. We applied a third hurdle. If there were more than one private equity investor in the company then that was one more thing in the favour of the company. Having identified the gems, we got Dun & Bradstreet to verify the financial numbers that companies were disclosing to us. Only when the numbers added up did we move ahead.
The list that emerged had one very interesting common feature. Except for three companies, Acme and ACB (India) and Firepro, other seven companies are actually old businesses that been refurbished through smart business model changes and passionate entrepreneurship. Almost 90 percent of the businesses in India are family-owned. Once they were thought of as middling companies who would disappear once the IIT-IIM crowd took to business. That has not happened. Instead, the family-owned businesses have gone out, picked up new technology, learnt to value professionals and experimented with business models. For instance, Himadri Chemicals and Cebbco are such companies. The great thing is that the gems in our list are scattered all across the country — from Jabalpur to Thrissur.
HIMADRI CHEMICAL
India’s largest maker of coal tar pitch, used in making aluminium and graphite. Founded by Kolkata-based Choudhary family. The second generation, led by Anurag Choudhary, has taken charge.
Secret Sauce Has the technology to convert even low quality tar into high quality coal tar pitch; has the scope to expand portfolio to 22 products from seven.
Financial Dashboard In 2008-09, revenue was $78 million, core profit margin was 38 percent.
What the Smart Set Saw “A quality product that is backed by robust customer service and technology expertise ,” says Vivek Chhachhi of CVCI, who says it was Himadri’s customers who helped spot and later recommended the company to the private equity major.
Guiding Light To become India’s largest ‘carbon corporation’.
VA TECH WABAG
Water treatment company. Bought out by Rajiv Mittal and his colleagues with private equity assistance. Took over its parent to become an India-based global player.
Secret Sauce VA Tech Wabag’s Austrian roots and local management gives it a twin advantage of global technology and economical costs.
Financial Dashboard This has been one of ICICI Ventures best investment ever. It sold a part of its stake realising an annualised return of over 240 percent over five years.
What the Smart Set Saw A competent management, a bunch of patents and a growing opportunity.
MANAPPURAM FINANCE
Thrissur-based lender against gold collateral. Promoted by P.H. Nandakumar
Secret Sauce Low-cost, high-speed working capital lending against one collateral most Indians have: Old gold ornaments.
Financial Dashboard Sequioa Capital invested in 2006 at Rs. 130 a share. UK-based fund Ashmore-Alchemy invested a year later at Rs. 170 a share. Today, the share price is Rs. 677.
What the Smart Set Saw Lending to customers who aren’t necessarily poor but who would never access a bank. All lending backed by gold!
(This story appears in the 05 February, 2010 issue of Forbes India. To visit our Archives, click here.)