Serial entrepreneur Sivasankaran bets on edible oil

MUMBAI/CHENNAI: First, it was telecom. Then came real estate and retail. And now, C Sivasankaran - the serial entrepreneur with a penchant for spotting sector stories early and making big, concentrated investments there that yield even bigger paydays - is swooping in on agri-commodities. In the past eight months, in what appears to be part of a broader strategy, Siva, as he is popularly known, has picked up sizeable stakes in two of India's biggest edible oil companies from the stock market.

In March 2010, he bought 6.4% in Ruchi Soya, India's largest edible oil producer, which he has since increased to 11.5%. Then, on July 26, Siva bought 5% in K S Oils. In neither case was the price disclosed. Siva did not reply to an e-mail questionnaire sent on Friday on his reasons for buying stakes in edible oil companies. Yet, everything about the investments suggests it is vintage Siva at work.

The Siva model

Siva, 53, has a signature operating style. First, he identifies a broad line of business. Then, he enters companies by acquiring chunky stakes in them. Once invested, he plays two distinct roles. In some cases, he plays an active role in management while in others he is content with a more passive role.
The latter model appears to be at work in the case of Ruchi and K S Oils, at least so far. Instead of changing the management, he works with them and pushing them to increase the value of the company and his investment. That accomplished, he exits, and moves on to a new business.

The Siva model has certainly worked. Between 1995 and 2005, he made gains of about $1 billion from his entry and exits in telecom - Aircel, RPG Cellular and Dishnet. Similarly, he bought Barista, the coffee chain, for Rs 65 crore in 2004 and sold it for Rs 500 crore in 2007. "Siva has always been able to assess future trends correctly," says Sunil Alagh, former managing director of Britannia Industries and now an FMCG consultant, who has known him for a decade. "He continuously churns his investments without emotional attachment."

That unemotional, calculated approach is in evidence in the edible-oil investments. A top official of K S Oils says Siva bought his stake in the company without informing the promoters, the Agarwals. In fact, the Agarwals got to know about this only when they spotted Siva group companies in the list of shareholders. They had never met Siva or spoken to him.

A few days later, managing director Sanjay Agarwal met Siva in Singapore, from where the latter moves the pieces of the $3-billion diversified group named after him. The K S Oils official says it was during that meeting that Agarwal understood Siva's interest in K S Oils was part of a bigger, long-term strategy. "There will be a food scarcity in India. Pulses, edible oils and sugar are scarce in a growing country like India," he reportedly told Agarwal.

The K S Oils transaction and its aftermath followed a pattern similar to that in the case of Ruchi Soya. There too, Siva had bought his initial stake, of 6.4%, from the market in early-2010 without the knowledge of Ruchi's promoters, the Shahra family. He subsequently met them and started hiking his stake: 8.5% in June 2010, and now 11.5%.

In 2009-10, K S Oils posted net sales of Rs 4,010 crore and a net profit of Rs 181 crore; Ruchi Soya recorded sales of Rs 14,531 crore and a net profit of Rs 172 crore. According to investment banking grapevine, Siva is likely to increase his stake in K S Oils, as he did in Ruchi.

But management control is not on the menu. This July, Siva Group CEO V Srinivasan had told ET: "We have no plans to acquire Ruchi Soya. It's more of a treasury operation."

Indeed Siva, is known to be a 'friendly investor' who builds a company and moves on. For instance, he holds 8% in Tata Teleservices, the mobile services business of the Tatas. He functions as an unofficial advisor, helping Ratan Tata execute his ambitious telecom plans. Whenever Siva is in Mumbai, he stays at Taj Wellington Mews, the luxury service-apartment in Colaba owned by the Tatas.

One way in which the edible-oil investments differ from the earlier deals is that the shares were bought from the market. All the previous deals were off-market deals, involving negotiations.

Since then, though, Siva has stepped up his interaction with both sets of promoters.

"We welcome all stakeholders who want to associate with us," says Dinesh Shahra, managing director, Ruchi Soya. Ruchi Soya's share price has risen 44% since Shiva's entry; the BSE Sensex, by comparison, has returned 20.3% during the same period.

Says an official close to Ruchi Soya and the Siva Group: "The shares have been purchased with the full knowledge of Ruchi promoters. It is a strategic investment, intended mainly to help Ruchi develop its overseas business and strengthen its brand." The same official says that Siva has very good contacts, both in India and abroad. "Those channels can be used," he says.

The promise of edible oil

Indian edible oil companies will need to scale up their game in the short to medium term.

Currently, India imports half its requirement, and Indian companies are looking to fill this gap as well as meet incremental demand. Says Alagh: "The future lies in palm oil, which accounts for 40% of total oil consumption. It will grow like soya oil did over a decade ago." Broking firm Nomura projects that edible oil demand in India will increase from 16 million tonnes (mt) to 30 mt by 2020.

However, raw material is an issue, as the Land Ceiling Act does not allow corporate farming in India. So, Indian edible oil companies have been importing and buying land in places like Indonesia and Malaysia, which are rich sources of palm. They plan to import that palm and process it into palm oil.

KS Oils, for instance, has bought 1,38,000 acres of land in Indonesia to grow palm. Says Agarwal of K S Oils: "About 50-60% of our operating margin goes to cultivators. This will now come to us and boost our profitability." With his contacts in the region, Siva could help companies like K S Oils and Ruchi find good plantations. According to executives from the edible oil industry, the Siva Group has also acquired large tracts of land in Indonesia and Ethiopia, which too can feed his investments in Ruchi and K S Oils.
Inducting professionals

Today, the Siva Group has 3,000 employees and revenues of $3 billion. Besides agro-commodities, its business interests include telecom (S Tel), wind energy (WinWinD of Finland), shipping (JB Ugland Shipping of Norway), commodity trading (Sterling Agro) and real estate (stakes in Hindustan Mill land in central Mumbai and Sahara's Aamby Valley project, among others).
Siva has been working to spruce up his group's image by hiring professionals as he diversifies into myriad areas including shipping, wind energy and agri-commodities. For instance, the shipping joint venture is headed by Bjorn Bergsland, an industry veteran of three decades. He's brought in Sanjeev Bafna, former president and CFO of Aditya Birla group company Grasim, to handle finance. The group also has a new website that reveals more.

It's been a long journey for a man who began as a fabrication contractor for Chennai Petroleum about 30 years ago. His first public splash was in the eighties, when he bought Sterling Computers from Robert Amritraj, father of Indian tennis legend Vijay Amritraj.

The Siva Group was originally known as the Sterling Group. In the eighties, at a time when PCs cost above Rs 80,000, Siva was selling them for Rs 33,000.

But Siva is best known for his deals in telecom. When mobile telephony was launched, he acquired the Tamil Nadu circle. He launched Aircel in 1997-98 and built it into a mobile player of significance in the South. In the process, he also bought RPG Cellular in 2003, which had the mobile licence for Chennai, for Rs 418 crore. In 2005, he sold Aircel to Malaysia's Maxis for $1.08 billion.

Barista is the other notable Siva transaction that is in the public domain. He bought 65.4% in the coffee chain from the Turner Morrison Group for Rs 65 crore in 2004, only to sell it to Italian company Lavassa for Rs 500 crore in 2007. If he has exited businesses at a loss, not much is known about them; there have been some aborted projects like a direct-to-home (DTH) venture with Zee Telefilms and a $1 billion undersea cable project from Chennai to Guam with US-based Tyco.

Siva is said to think out-of-the-box and is known to take impulsive decisions. An investment banker in Mumbai who negotiated with Siva during Barista's sale says he is 'tough'. He recounts another incident when his firm approached Siva on behalf of a potential buyer for Aircel. Siva said he would talk only if it was Bharti Airtel valuations (the only mobile-service company listed then and quite coveted). "At the same time," says the investment banker, "he's practical". "During negotiations, if he finds some irrational discussion happening, he is ready to solve it," he says.

But market watchers say some of his new investments might not match the returns from his old investments. Says the investment banker: "Changes in government policies helped him in telecom. Besides, he doesn't have the scale to compete in new businesses like shipping." In his entry into agri-commodities, he's looked like the vintage Siva. But it's the exit that counts.


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