Succession Planning by Family Owned Businesses in India PDF

STRATEGY
July 2016
Succession planning by family owned businesses in India
Research Analyst: Consultant: Subject Matter Expert

Prashant Mittal, CFA Anupam Gupta Anoop Hoon
prashantmittal@ambitcapital.com anupam.gupta@aavanresearch.com anoophoon@gmail.com
Tel: +91 22 3043 3218
Strategy
CONTENTS
Succession planning by family owned businesses in India……………………… 3
Section 1: The success of family-owned businesses (FOBs)……………………. 4
Section 2: The challenges faced by FOBs…………………………………………12
Section 3: How to succeed at succession………………………………………… 16
Section 4: The Succession Checklist……………………………………………….18
Appendix 1: Lifecycle of an FOB, its problems, and solutions…………………22
Appendix 2: Case studies of FOBs and succession planning…………………. 32
July 18, 2016 Ambit Capital Pvt. Ltd. Page 2

Strategy
THEMATIC July 18, 2016
Succession planning by family owned Succession planning - companies to

watch out for
businesses in India Wipro Our stance: SELL
Mcap (US$ bn): 21.2 ADV - 6m (US$ mn): 12.4
Family owned businesses (FOBs) in India tend to be good investments.
HCL Tech Our stance: BUY
Our Indian Family Firm Index (IFFI) has outperformed the BSE200 by 3%
Mcap (US$ bn): 15.2 ADV - 6m (US$ mn): 28.5
points p.a. over the past decade. However, FOBs also face unique
challenges. The Modi and Rajan resets threaten the future of those FOBs M&M Our stance: SELL
whose main advantages were easy access to capital and political Mcap (US$ bn): 13.6 ADV - 6m (US$ mn): 20.2
connections. Further, promoters must choose their successors carefully to Hero Motocorp Our stance: SELL
ensure their FOB survives in the new, more competitive economy. We flag Mcap (US$ bn): 9.7 ADV - 6m (US$ mn): 18.2
Wipro, HCL Tech, M&M, Hero Moto, Godrej Consumer, and Dabur as Dabur Our stance: SELL
FOBs where succession planning will play a key role. Mcap (US$ bn): 8.3 ADV - 6m (US$ mn): 6.0
Ambit’s IFFI has outperformed the benchmark Godrej Consumer Our stance: SELL
FOBs in the BSE200 employ more than 1m people and account for 34% of its Mcap (US$ bn): 8.1 ADV - 6m (US$ mn): 5.8
market capitalization. FOBs are also compelling investments. Ambit’s Indian Tech Mahindra Our stance: BUY
Family Firm Index (IFFI) has outperformed the broader BSE200 index by 3% Mcap (US$ bn): 7.3 ADV - 6m (US$ mn): 14.6
points on a CAGR basis over the past decade. IFFI companies have outpaced the Zee Entert. Our stance: SELL
revenue and operating profit growth of the broader index but lag in terms of Mcap (US$ bn): 6.5 ADV - 6m (US$ mn): 12.7
capital efficiencies (specifically on RoCEs). Supreme Ind. Our stance: BUY
FOBs face a three-pronged challenge Mcap (US$ bn): 1.7 ADV - 6m (US$ mn): 1.2
AIA Engineering Our stance: BUY
The success of FOBs is due to well-known factors such as focus on the long-term,
access to large pools of capital, etc. However, Indian FOBs now face three Mcap (US$ bn): 1.4 ADV - 6m (US$ mn): 0.7
challenges: first, the 1991 entrepreneur is nearing retirement, second, the new VA Tech Wabag Our stance: BUY
era of political resets threatens the crony capitalist FOB model, and third, these Mcap (US$ bn): 0.5 ADV - 6m (US$ mn): 1.2
changes will increase the cost of capital for capital intensive FOBs. Thus, for the Mayur Uniquoters Our stance: NR
FOB to succeed in this altered world, promoters need to choose their successors - Mcap (US$ bn): 0.3 ADV - 6m (US$ mn): 0.2
family or professionals - on merit, instead of bloodline. Source: Bloomberg, Ambit Capital research
Succeeding at succession
The lifecycle of an FOB tracks the lifecycle of the promoter (Appendix 1). Thus,
the transition to the next generation becomes a key turning point. The key to a
smooth transition, as insights from our case studies (Appendix 2 containing Asian
Paints and Marico, Apollo Tyres and Ranbaxy, Reliance Industries and Bajaj Auto)
show, lies with the promoter a) planning for succession in advance, b) employing
professionals from an early stage and allowing them to lead the FOB, and c)
ensuring an optimum balance between ownership and management.
A succession checklist for investors
Clarity on the successor and their acceptance within the organization is important
in ensuring that the FOB survives to the next generation. We provide a checklist
for investors to gauge an FOBs vulnerability to succession planning issues. Research Analyst
Among large FOBs, we flag off Wipro, HCL Tech, M&M, Hero Moto, GCPL, and
Dabur where a change in command will play a key role in the future. Prashant Mittal, CFA
+91 22 3043 3218
Ambit’s IFFI has outperformed the BSE200
prashantmittal@ambitcapital.com
350
Consultant
250
Anupam Gupta
150
anupam.gupta@aavanresearch.com
50
Subject Matter Expert
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Anoop Hoon
IFFI BSE200 Index anoophoon@gmail.com
Source: Bloomberg, Ambit Capital research
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Strategy
Section 1: The success of family-owned

businesses (FOBs)
“A man who doesn’t spend time with his family can never be a real man”
- Don Corleone in Francis Ford Coppola’s movie (1972) based on Mario
Puzo’s bestselling book, ‘The Godfather’ (1969)
FOBs are big everywhere

Family-owned businesses (FOBs) are among the oldest forms of trade, commerce, FOBs are among the oldest forms
and industry in the world. The Global Family Business Index compiled by the Center of trade, commerce, and industry
for Family Business at the University of St. Gallen, Switzerland, and Ernst and Young, in the world.
lists the top 500 family firms in the world. As of 4th Feb 20161, these top 500 family
firms generated sales of US$6.5tn (as an economy it would rank third after the US
and China) and employed 21 million people. The website names Takenaka
Corporation (Japan), which has been around since 1610, as the oldest firm.
Compared to the US/Europe, Asia has a rich culture of FOBs stemming from the
prevalence of family values (eg: Chaebols in South Korea, Keirestu in Japan). In its
April 2015 special issue on FOBs, The Economist magazine wrote2, “Family
companies were at the heart of the development of capitalism in Asia. Family names
acted as a guarantee of honesty for fellow business people and quality for consumers.
Family ties allowed business people to operate across countries and regions.”
FOBs serve as an important mechanism for transmitting capital from the rich to the FOBs serve as an important
poor (via job creation) and from one generation to another (via inheritance). As the mechanism for transmitting capital
18th April 2015 issue of The Economist notes, “Family businesses make up more than
90% of the world’s companies. Many of them are small corner shops.” Hence, FOBs
also play a key role in generating employment. FOBs also play a big role in
innovation. In his book, "Dynasties", David Landes writes about how FOBs in the West
have been at the forefront of innovation, "These countries (Europe and the United
States) have in fact been the leaders of economic development and innovation, the
makers of modernity - and much of this development, innovation, and modernity has
been the work of family enterprise."
In the absence of a formal banking system, a patriarch and his family become the
primary source of capital for the community. For example, the Muthoot Family in
Kerala founded a gold loan business in 1939, an offshoot of the trading business
established by Ninan Mathai Muthoot in 1887. In their book, "Family Multinationals",
editors Lubinski, Fear, and Perez write about how, as far back as the mid-1880s in
Southeast Asia, Indian families (in specific, the Chettiar community) were prominent
in insurance, banking, and money-lending, as the only source of mid-to-long-term
credit. The Murugappa Group set up an insurance company amongst its first
businesses when it relocated to India from Burma after World War 1.
However, these informal and unorganized transactions also raise the cost of capital
since they are based on mutual trust. In fact, FOBs thrive in an atmosphere of weak
institutions such as banks, legal courts, etc. Academic research indicates that FOBs
act as substitutes in the absence of strong institutions that enforce contracts, protect
property rights, protect investor interests, etc.
Writing for the Journal of Economic Perspectives in 2006, authors Marianne Bertrand Family ties serve as a second-best
and Antoinette Schoar noted3, “An alternative explanation for the presence of family solution in countries with weak
firms is that family ties serve as a second-best solution in countries with weak legal legal structures
structures, since trust between family members can be a substitute for missing
governance and contractual enforcement.” Landes writes of the necessity of family
enterprises in the developing world, "..the nations of the developing world, particularly
those most desperate for economic development, urgently need family enterprise. Their
cultural, political, and economic circumstances are not mature enough for managerial
business structures."
1
http://familybusinessindex.com/data/Global_Family_Business_Index_comment_by_Thomas_Zellweger.pdf
2
http://www.economist.com/news/special-report/21648174-worlds-most-dynamic-region-family-
companies-occupy-commanding-heights
3
http://www.mit.edu/~aschoar/BertrandSchoarJEP2007.pdf

Strategy
FOBs – the best of both worlds

FOBs, ideally, combine the positives of family (values such as commitment, loyalty, FOBs combine the best of both
stability, and trust) and the positives of business (profit, growth, professional business and family
management). Since he is the owner, an entrepreneur typically has a better
understanding of, and has a higher level of commitment to, his business than a
professional.
As the business grows, the FOB then becomes a mirror image of the founder. The
stamp of the owner’s personality in the business can be a strong positive. For
example, the frugality of Asian Paints is well-known and goes back to days of its
founders. In 1967, when Asian Paints became the largest paints company in India,
the four founders still shared one car (an Ambassador) between themselves. The car
would bring family members to office every day and serve every family for one day in
a week. Asian Paints’ co-founder, Champaklal Choksey, explained this by saying
“Mujhe har paisa bachana hai, yadi mujhe Asian Paints ko badhana hai” (or, I have to
save every single paisa, if I want Asian Paints to succeed).
In specific, the advantages of an FOB include:
 Removal of the principal-agent problem: In the principal-agent problem, the
motives of the agent (professionals that manage a company and do not have an
ownership stake) are different from those of the principal (the shareholders),
making it difficult for the principal to manage the agent. In case of FOBs, the
largest shareholder also runs the business and, hence, the motives of
management and ownership are effectively aligned.
 The charismatic promoter as a competitive advantage: A driven, motivated A driven, motivated promoter can
promoter can also be a competitive advantage. He can also take risks and be also be a competitive advantage.
conservative depending on the situation. With leadership being centralized, the
FOB can move quickly compared to professionally managed companies that need
an internal consensus for big decisions. In his book, “Ambani & Sons”, Hamish
McDonald writes about how "by the end of 1986 Dhirubhai Ambani had raised an
unprecedented `9.4billion from the public over eight years, including `5billion from
one debenture issue." Ambani used this funding to rapidly expand Reliance's
manufacturing operations. The Patalganga polyester plant was put up in a fast 18
months (Du Pont's international director had stated that such a plant would have
taken 26 months to build in the United States). Macdonald wrote, "Constant
expansion and heavy borrowing gave ever-increasing cost deductions to offset
against profits. Reliance became the most famous of India's 'zero-tax' companies."
Indeed, no consensus-seeking professional CEO would ever have been able to
take such remarkably aggressive decisions. In the US, Apple’s founder CEO Steve
Jobs was known for huge strategic moves that could never have been taken by a
conventional CEO with an Ivy League MBA. For example, when it launched in
1998, the iMac famously did not feature a floppy disk drive – a bold move then
and much ahead of the eventual removal of these drives in computers. In 2001,
after the dotcom bubble burst, experts predicted that the central role of the
personal computer was ending. After reviving its personal computer offering,
Apple had to think differently. As Walter Isaacson wrote in Steve Jobs biography,
“It was at that moment that Jobs launched a new grand strategy that would
transform Apple—and with it the entire technology industry. The personal
computer, instead of edging toward the sidelines, would become a “digital hub”
that coordinated a variety of devices, from music players to video recorders to
cameras.” He added, “Apple would no longer be just a computer company—
indeed it would drop that word from its name—but the Macintosh would be
reinvigorated by becoming the hub for an astounding array of new gadgets,
including the iPod and iPhone and iPad.”
 Focus on business, not QoQ/YoY: Promoters in general, and passionate Rather than chase short-term
entrepreneurs in particular, are driven by longer-term motives of greatness and goals, promoters tend to have a
achievement and this long-term commitment is a key positive for their businesses. longer horizon for their business.
Rather than chase short-term goals, they have a longer horizon for their business.
Since they are the owners of their business, promoters are more thrifty and
conscious of how money is being spent and they realize that productivity is critical

Strategy
and costs reduction imperative. FOBs are thus focused on building institutions
that last, compared to professionally run companies that have to satisfy their
shareholders, sell-side analysts, and investors and therefore tend to pace their
achievements in quarterly performance. Given that they have a majority stake in
their own company, promoters of FOBs have a freer hand in their companies and
are not beholden to QoQ and YoY performance. Like Steve Jobs, Jeff Bezos, the
founder of Amazon, is well-known for his passion and ambition. In his book, “The
Everything Store”, Brad Stone writes about Amazon’s first letter to public
shareholders in 1997. “The letter also stated that the company would make
decisions based on long-term prospects of boosting free cash-flow and growing
market share rather than on short-term profitability, and one section in particular
served as a guidepost for the unorthodox way the company planned to approach
Wall Street.” Stone quotes from the 1997 letter that is publicly available4, “We
believe that a fundamental measure of our success will be the shareholder value
we create over the long term. This value will be a direct result of our ability to
extend and solidify our current market leadership position. The stronger our market
leadership, the more powerful our economic model. Market leadership can
translate directly to higher revenue, higher profitability, greater capital velocity, and
correspondingly stronger returns on invested capital.” (Note: the emphasis on
‘long-term’ is as per Amazon’s original letter).
Introducing the IFFI

In order to track the performance of India’s large, listed FOBs, we construct the Ambit Ambit’s Indian Family Firms Index
Indian Family Firm Index (IFFI), using the following methodology: (IFFI) tracks India’s largest FOBs
 We start with the BSE200 Index as it stood in June 2006. We define an FOB as a
listed company where the promoter and promoter group (including his family)
holds more than 25% stake.
 We exclude the following from Ambit’s IFFI:
1 Companies that were acquired and/or delisted, such as Essar Ports, Essar
Steel, Ranbaxy, etc.
2 Companies from the Banking and Financial Services Industry (BFSI), because
the RBI does not favor any large industrial house promoting a bank, as is
evident in the fact that no large private sector bank in India is owned by any
major family and,
3 Multi-national companies (MNCs), since they are not owned by Indian
families.
 After running this filter, we are left with 86 companies. We use the full market
capitalization of these companies and give equal weights to all of them to avoid
bias towards any particular company. We start the IFFI from 1st Apr 2006, where
the value is taken as 100.
Our back-testing results of the IFFI’s performance for the past decade are given in
Exhibit 2.
4
http://media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf

Strategy
Exhibit 1: Ambit's IFFI has outperformed the BSE200 Index in the past decade
350
300
250
200
150
100
50
Mar-06
Aug-06
Jan-07
Jun-07
Nov-07
Apr-08
Oct-10
Sep-08
Feb-09
Jul-09
Dec-09
May-10
Mar-11
Aug-11
Jan-12
Jun-12
Nov-12
Apr-13
Oct-15
Sep-13
Feb-14
Jul-14
Dec-14
May-15
Mar-16
IFFI BSE200 Index
Source: Bloomberg, Ambit Capital research.
After performing broadly in line with the BSE200 until Mar 2009 (also the post-global
financial crisis bottom made by the market), the IFFI began outperforming the IFFI has risen at a 12.2% CAGR
BSE200. Hence, from 31st Mar 2006 to 30th Jun 2016, the IFFI has risen at a CAGR of over 2006-2016, compared to
12.2%, ahead of the BSE200’s 9.1% CAGR. The main outperformers are from the 9.1% for the BSE200
consumer (Asian Paints, Marico, Titan, and Godrej Consumer) and healthcare (Lupin,
Divi’s Lab, and Aurobindo Pharma) sectors. The main laggards are not from any
particular sector but include Sterling Biotech, Bajaj Hindusthan, Suzlon, Alok
Industries, and Gujarat NRE Coke.
The highlights of the IFFI are as follows: Revenues of India’s biggest FOBs
 The revenues of the 86 companies in the IFFI stood at `18.8tn for FY16, or 49% are about 14% of India’s GDP
of the revenues of the BSE200 (ex-BFSI).
 Companies in the IFFI employed a total of 1.3m people, or 60% of the headcount
of the BSE200 (ex-BFSI).
 The combined PAT of the IFFI companies stood at `1.3tn in FY16, or 53% of the
PAT of the BSE200 (ex-BFSI).
 The combined market cap of the 86 companies in the IFFI is `29.3tn, or 53% of
the market cap of the BSE200 (ex-BFSI).
In the exhibits below, we track the financials of IFFI versus the broader indices for the
past decade. As can be seen, the IFFI companies have seen stronger revenue and
operating profit growth in the past decade than the BSE200 Index (ex-BFSI).
Exhibit 2: Strong revenue growth for IFFI companies in the past decade
IFFI revenue growth has outpaced
35
the revenue growth of the BSE200
30 over 2006-16
25
20
(%)
15
10
5
-
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
IFFI BSE200 Index (ex-BFSI)
Source: Company, Ambit Capital research

Strategy
Exhibit 3: IFFI’s EBITDA growth has also beaten BSE200 (ex-BFSI)
40
35
30
25
(%)
20
15
10
5
-
After increasing from FY06 to FY11, median capex of the IFFI companies has
stabilized and remained remarkably steady at `4.1bn/annum from FY12 to FY15.
Hence, this is line with our thesis that FOBs lead the overall industry (BSE200 ex-BFSI)
in terms of capex generation.
Exhibit 4: Indian FOBs are big generators of capex Median capex for IFFI companies
stood at `bn/annum in the past
7,000 four years
Median annual capex (`m)
6,000
5,000
4,000
3,000
2,000
1,000
-
In short, the revenues, PAT and capex5 of the IFFI companies have grown 4.2%, 3.3%
and 4.3% points faster than the BSE200 over the past ten years.
In terms of debt/equity, the IFFI companies are more leveraged as compared to the
BSE200. This is because the large IFFI companies have resorted to taking debt to fund
their expansion. However, although the IFFI companies have more debt than the rest
of the BSE200, we note that debt/equity levels have stayed within the 0.8-1x range in
the past decade.
5
Please note that Capex outperformance of IFFI v/s BSE200 is over FY05-15 since cash flow data is not
available in quarterly filings. Revenue & PAT data is over FY06-16.

Strategy
Exhibit 5: IFFI companies debt/equity ratios have largely remained stable
(x)
1.2
1.0
0.8
0.6
0.4
0.2
-
FOBs falter at ROCEs and ROEs

However, we note that ROEs and ROCEs for IFFI companies lagged the overall
BSE200 Index. This reflects the impact of large capital outlays by FOBs such as
Reliance Industries (telecom venture capex), Bharti Airtel (Zain acquisition in FY11
and subsequent network expansion), Tata Motors (JLR acquisition in FY09), and Tata
Steel (Corus acquisition in FY09). Led by these large expansions, all of these
companies have seen a significant decline in ROCEs from FY06 (average 30%) to
FY15 (average 11%), dragging down the overall ROCE and ROE for the IFFI
companies.
Exhibit 6: But IFFI ROCE has lagged the BSE200
25
20
15
(%)
10
-
Exhibit 7: Similarly, IFFI ROEs have also lagged the BSE200
25
20
15
(%)
10
-

Strategy
From the above analysis, we delve further into the question - why do large FOBs
allocate capital poorly, given that the promoter family loses the most with such poor
returns on capital? Ambition and aspiration can only explain very little. We believe
there is more at play and provide the following reasons:
 Most capital intensive businesses in India tend to be large FOBs. Thanks to their
large size, they have better access than most to large amounts of funds that the
FOBs use for capex/acquisitions. Hence, almost by definition, a leading player in
a capex intensive sector, will most likely be an FOB.
 Over 90% of capex in India over the past decade has come from five sectors –
power & infra, telecom, metals, oil & gas, real estate – all of which are
synonymous with crony capitalism.
 Therefore, as crony capitalism has been battered in India (the CAG reports on
allocation of telecom spectrum, coal, Delhi airport, KG-D6, etc. followed by the
resets triggered by Modi & Rajan), FOBs have taken the hit in the form of poor
returns on their capex.
India – at a turning point for entrepreneurism

India also has a long history of business families that go back several generations. India has a long history of business
Families that have been around for more than 100 years include the Tatas, the Birlas, families that go back generations.
the Jains (of the Times of India Group), the Murugappas, the Burmans (of Dabur),
and the Wadias. However, as countries grow and prosper, access to capital increases
(as organized finance in the form of banks and financial institutions spreads across
the country) bringing down the cost of capital and reducing reliance on FOBs.
India is at a turning point of entrepreneurship, with 2016 being the 25th year of the
economic reforms that liberalized India. As per Walt Whitman Rostow’s ‘stages of
growth’ theory, economic growth occurs in five stages of varying lengths:
1. Traditional society
2. Preconditions for take-off
3. Take-off
4. Drive to maturity
5. Age of high mass consumption
India was stuck in the first phase until the end of the license-raj in 1991. More India is in the final two stages of
specifically, the first two stages corresponded to the pre-license raj era, with the Rostow’s 5-stage model of
second stage corresponding to the 1980s with early reforms such as export economic growth
liberalization, industrial policy reforms, and moving away from a single currency peg.
India’s economy reached Stage 3 with the broader set of reforms in 1991 which
included trade and FDI liberalization, privatization, globalization and tax reforms. The
expansion of India’s road network, telecom and power sector reforms, from FY04 to
FY14 match with Stage 4, the drive to maturity. We have covered these economic
phases in depth in our March 2014 thematic report (click here), ‘Invest into India’s the
Fourth Wave’. India is thus in the final two stages of economic growth with increasing
penetration across categories from automobiles to consumer staples driving mass
consumption.
FOBs should outlive their founders

In our September 2014 thematic report (click here) titled ‘The lifecycle of a great
company’, we analyzed how great businesses in India tend to follow the founding
promoter’s biological lifecycle. As the promoter prospers, so does the company and
as the promoter readies to retire, the handover to the next generation becomes
critical. This report builds on the criticality of this handover in the form of smooth
succession planning. We believe that an FOB can live beyond its founder and become
an institution over the long-term, creating wealth for the promoter family, investors,
as well as for society at large.

Strategy
In section 2, we describe the inherent challenges in an FOB in general and the

unique issues faced by Indian FOBs in particular.
In section 3, we describe succession models used by Indian companies as well as
insights from our case studies.
In section 4, we provide a checklist for investors to gauge an FOB’s vulnerability to
succession planning issues.
In Appendix 1, we show how the lifecycle of an FOB tracks the lifecycle of the
promoter.
Finally, in Appendix 2, we provide detailed case studies under three categories,
where succession plans worked (called ‘the good’, Asian Paints and Marico), where
prolonged family disputes broke out during generational shifts, (called ‘the bad’,
Apollo Tyres and Ranbaxy) and where family disputes resulted in the disaggregation
of the listed company’s business (called ‘the ugly’, Reliance Industries and Bajaj
Auto).

Strategy
Section 2: The challenges faced by FOBs

“Tales of money, power, and kinship inevitably entail drama and passion,
especially with the passage of generations: as wealth grows, so do the
opportunities for disagreement.”
- David S. Landes in his book ‘Dynasties: Fortunes & Misfortunes of the
World’s Great Family Businesses’ (2006)
Classification of FOBs
FOBs are more prone to disputes than professional companies due to their
composition. We believe FOBs can be classified into three categories:
a) Founder/entrepreneur: FOBs usually are born as the enterprise of an FOBs usually are born as the
entrepreneur with or without the support of his family. As the enterprise of an entrepreneur
founder/entrepreneur grows old and has children, and if the FOB survives, the
businesses move to the next generation. From Dhirubhai Ambani in India to
Henry Ford in the USA, first generation entrepreneurs mark the beginnings of
most FOBs.
b) Founder with siblings: In this case, a group of brothers start the family business A group of brothers can also start
together or, in some cases, rapidly expand the father’s business far beyond what the family business together
it originally began. Some examples include the Dhingra Brothers (Kuldip Singh
and Gurbachan Singh) of Berger Paints, Shashi and Ravi Ruia of Essar, the
Hinduja brothers (Srichand, Gopichand, Prakash, and Ashok), the Mittal Brothers
(Rakesh Bharti, Sunil Bharti, and Rajan Bharti). In the case of the Ambanis,
Dhirubhai Ambani’s brothers, Ramniklal and Natwarlal, eventually joined him in
the business. In case of the Bajaj family, the third generation (mainly Rahul Bajaj)
went on to make Bajaj Auto the largest company within the family. Similarly,
Aditya Vikram Birla built the AV Birla Group, which is currently the largest in the
Birla family.
c) Founder with partners: In this case, the FOB is formed by a group of peopleAn FOB can be started by a group of
who are not related by blood. Compared to single founders and founders with unrelated promoters as well
siblings, FOBs with founder partners are less common. Prominent examples
include: a) Asian Paints which was founded by Champaklal Choksey and his
friends Chimanlal Choksi (no relation despite the similar surnames), Suryakant
Dani, and Arvind Vakil; and b) Infosys which was founded in 1981 by N.R.
Narayan Murthy and six other engineers. Other examples of founding business
partners include Emami (founded by Radhe Shyam Agarwal and Radhe Shyam
Goenka) and Ipca Laboratories (which was acquired by the Bachchan family,
Premchand Godha, and M.R. Chandurkar in 1975 from its previous owners). The
Firodia and Bajaj families started Bajaj Tempo and Bajaj Auto to manufacture
two-wheelers and three-wheelers in the 1950s but drifted apart by 1968.
FOBs – more vulnerable to failure

However, FOBs also face unique challenges such as its sustainability over long “Shirtsleeves to shirtsleeves in three
periods of time. As Harvard Business Review noted6 in its Jan-Feb 2012 issue, “In the generations”
United States, a familiar aphorism — “Shirtsleeves to shirtsleeves in three generations”
— describes the propensity of family-owned enterprises to fail by the time the founder’s
grandchildren have taken charge. Variations on that phrase appear in other languages,
too. The data supports the saying. Some 70% of family-owned businesses fail or
are sold before the second generation gets a chance to take over. Just 10%
remain active, privately held companies for the third generation to lead. In contrast to
publicly owned firms, in which the average CEO tenure is six years, many family
businesses have the same leaders for 20 or 25 years, and these extended tenures can
increase the difficulties of coping with shifts in technology, business models, and
6
https://hbr.org/2012/01/avoid-the-traps-that-can-destroy-family-businesses

Strategy
consumer behavior. Today family firms in developing markets face new threats from
globalization. In many ways, leading a family-owned business has never been harder.”
(emphasis ours).
Thus, FOBs worldwide face unique problems. India has its fair share of families that
faded in prominence (Shri Ram Family of DCM Group, the Dalmias, the Mafatlals,
etc.), that survived through the ages (the Tatas, the Birlas, the Burmans, etc.), and
that grew exponentially (the Ambanis, Dilip Shanghvi of Sun Pharma, Mittals of
Bharti, Agarwal of Vedanta).
We discuss some of these challenges faced by FOBs:
a) The exponential multiplication of promoters: Assume that the promoter has
children and they get married and have their own children. In an FOB, this
potentially creates feuds, dissipates power, fractures the unity of command, and
introduces politics.
Consider this: if two friends or brothers set up a business, then within 20 years, Expansion of family also increases
there will be four people vying to run the business (assuming each promoter has the number of contenders to run
two children) in the next generation. We provide the family tree of the Birlas as the FOB
an example to highlight this point. In each of our 6 case studies in Section 4, we
provide similar family trees for the families discussed.
Exhibit 8: The sprawling empire of the Birlas matches its large family
Source: Business Maharajas by Gita Piramal (1996), Ambit Capital Research
b) Growth issues: As the company becomes large, promoters begin to diversify in Diversification in unrelated areas is
unrelated areas. This is also one way to provide for separate businesses for the one way to provide for separate
promoter’s children. While the Birlas started with trading cotton, eventually each businesses for the promoter’s
family branch ventured into different areas, with the AV Birla Group being the children
largest – with industries as diverse as cement (Ultratech) and telecom (Idea
Cellular). The Ambanis started with polyester and are now present in telecom
(Reliance Jio, Reliance Communications), retail (Reliance Retail), and finance and
insurance (Reliance Capital), energy (Reliance Power). Even a comparatively new
family like the Sunil Bharti Mittal Group began as manufacturers of crankshafts
for bicycle manufacturers in Delhi, and eventually ventured into telecom. Once
the telecom business grew, the Mittals diversified into retail (Bharti-Walmart tie-
up) and insurance (Bharti-Axa). The liberalization of India’s economy has also
helped in adding new sectors for diversification. Not all diversification is bad and

Strategy
providing businesses for children is the prerogative of the promoter. However, in

our view, this raises questions on capital allocation choices that are driven by
promoter ambition instead of profitability and maintaining strong ROCES.
c) Ill-equipped promoters: An absence of professionals can choke promoter Absence of professionals chokes
bandwidth, and as the company grows its family members might not be equipped promoter bandwidth
for handling new challenges. While the promoter can take a company to its
prime, as the FOB grows large, it will require professional help to stave off
competition. Professionals bring in a different skillset and mindset as well as
infusion of youth – all of which are is vital for the long-term success for the FOB.
In their 2015 book, ‘Indian Family Business Mantras’, authors Peter Leach and
Tatwamasi Dixit write, "There comes a time in the development of every business
when owners reach a saturation point after which they can no longer do everything
themselves. They can try, but this will mean that they have ceased to make the
most effective use of their time - and an entrepreneur's most valuable asset is time."
d) Transition to the next generation: In case of FOBs, there are two scenarios: Generational shifts are a major
the first where the children are interested in running the FOB after their parents, turning point for the FOB
and the second where they have no interest. In the second case, the solution is
easy – the promoter should let professionals run the show, with the children free
to do what they want as long as they continue to hold their stake in the company.
We have seen this play out in case of Marico where Harsh Mariwala stepped
down in 2014 and handed over leadership to Saugata Gupta since Mr.
Mariwala’s children (Rishvi and Rishabh) ventured off on their own. TTK Prestige,
part of the TT Krishnamachari (TTK) Group, is run by Chandru Kalro (who has
been with TTK Prestige since 1986), and family head, TT Jagannathan, is the
Chairman. The Murugappa Group let professionals lead the company as far back
as 1999. However, if the children are interested in joining the company, this
involves a shift in power from the old to the new. These shifts are often major
turning points for FOBs, often characterized by power plays and politics, and
hence have to be managed well.
e) Lack of professional talent: All of the above problems create the impression "Business professionals think twice
that FOBs are a one-man or one-family outfit where professionals have limited before joining a family-owned
growth opportunities. Leach and Dixit write, "Business professionals think twice firm”
before joining a family-owned firm because career expectations often terminate
one rung from the top of the ladder, above which positions are reserved for family
members”. To make things worse, promoters feel threatened by CEOs given the
loss of turf and loss of power involved in handing over the running of a business
built from scratch to a stranger outside of the family.
The challenges unique to Indian FOBs

A) The first flush of entrepreneurs are nearing retirement
Whilst India has a high level of entrepreneurial spirit, the traditional model of
entrepreneurism (which flourished in India under the license raj) ended in 1991. As
we show in the case studies of Apollo Tyres and Ranbaxy (in Appendix 2), the end of
this model caused rifts between generations within families.
India is also at an unusual cusp. Let us take the example of an entrepreneur who, at
the age of 35, began his business after the liberalization reforms of 1991. Today, that
entrepreneur would be 60 years old and it would be time for him to step aside over
the next 5 to 10 years. Moreover, an entrepreneur of the 1991 era would find that
the character of the economy has changed with the advent of disruptive technologies,
making his knowledge and experience (of navigating through a very different India)
appear outdated. His successor will hold the key to the continuation of the FOB.
Hence, for the FOB to survive, its leadership should navigate the company in the new
era, while the founder/promoter can provide mentorship to strengthen the company
from within.
B) Crony capitalism is on its way out in India
The post 1990s model of entrepreneurism - gaming the public contract system - was
exposed with the Comptroller & Auditor General’s Report on telephone spectrum in
2010. This is also on its way out. As we have highlighted several times (read our

Strategy
December 2015 thematic, ‘M+R+T=Earnings recession in India’ (click here), India is

undergoing a major structural transformation under the influence of resets driven by
PM Narendra Modi and the outgoing RBI Governor Dr. Raghuram Rajan.
These changes will pose existential issues to all businesses (FOBs or otherwise), as
their competitive advantages (for example, licenses, access to political patronage,
access to capital, etc) are challenged by newer, hungrier businesses and
entrepreneurs. Large FOBs will struggle to deal with this change more than large,
executive run companies like HUL, ITC, etc. This is because often, the promoters of
the FOBs refuse to look beyond family members to identify the best talent from the
next generation to run the FOB.
C) Cost of capital set to rise
Due the reasons highlighted in points A & B, FOBs, especially in the capex heavy
sectors, have proved to be less adept at capital allocation than the broader BSE200.
To reiterate our findings from Section 1, companies in the IFFI have poorer capital
efficiencies (ROCE and ROE) and higher debt/equity ratios than BSE200 (ex-BFSI
companies).
This means that the next generation of FOBs CEOs will have to tackle several
existential risks facing the FOBS as the stockmarket rapidly increases the cost of
capital for capex intensive FOBS. The last time the Indian economy went thru as big a
transition (in the 90s), a whole generation of big FOBs got kicked out of the Sensex.
Exhibit 7 is from our June 2010 thematic, ‘Decadal changes in the Sensex’ (click here)
and shows how large, established companies like Bombay Dyeing, Hindustan Motors,
and Century Shipping churned out of the Sensex in the decade following the 1991
reforms.
Exhibit 9: FOB exits from the Sensex in 1992 and 2002 Large, established companies
Share price CAGR 92-02
Exits by 2002 (Churn in 1992-2002) churned out of the Sensex in the
CAGR 92-02 (%) (Rel to Sensex)
decade following the 1991...
Bombay Dyeing (21) (26)
Ballarpur Industries (18) (23)
Ceat Tyres (15) (20)
Century Spinning (20) (25)
GE Shipping (14) (19)
Hindustan Motors (16) (21)
Indian Hotels 7 2
Indian Rayon (8) (13)
Kirloskar Cummins 7 1
Indian Organic (21) (27)
Mukand (29) (34)
Premier Auto (21) (26)
Tata Power (6) (11)
Voltas (10) (15)
Zenith (31) (36)
Source: Bloomberg, Ambit Capital research
Going forward, as the playing field levels out, FOBs which relied on sources of
advantage such as superior access to capital and political connections, face two
challenges: finding a suitable successor and rewiring their business models to
compete in an altered world. We believe some FOBs have already realized these
immensity of these challenges and, in response, have begun selling their businesses –
for example, Vijay Mallya selling United Spirits to Diageo in 2013 and, more recently,
the Jaypee Group selling its cement assets to Ultratech Cement.
In the remaining two sections of this report, we address the following questions:
 How can FOBs deal with succession related issues in an optimal manner?
(Section 3)
 Which FOBs face the most imminent challenges on the succession front? (Section
4)

Strategy
Section 3: How to succeed at succession

"Doing nothing about succession is quite often disastrous for family
companies. Yet many business owners, reluctant to give up control and
preferring to live with ambiguity, decide that avoiding the issue is the best
course for them."
- Peter Leach and Tatwamasi Dixit in their book ‘Indian Family Business
Mantras’ (2015)
Succession planning models

To create long-term wealth for the family, businesses should outlive and thrive even
after their promoters. When done right, succession planning ensures harmony within
the family, longevity of the business and value creation for investors, including the
family which is the largest shareholder of the company. Succession planning resolves
uncertainty and provides stability for the FOB.
There are three distinct models of succession planning that have ensured that FOBs
make the most of leadership under the family as well as from professionals. These
are as follows:
 Promoter handing over leadership to a professional: In this case, the family Family relinquishes operational
removes itself from running the company and relinquishes operational control to control to a professional
a professional. The founder remains on the Board of Directors as chairman but
the CEO/MD post is given to a professional CEO. The founder’s family has
minimal presence in the Board which is dominated by professionals. In case of
Marico, Harsh Mariwala stepped down as MD in March 2014, elevating Saugata
Gupta to the Board in his place. Marico’s Board consists of nine directors,
including Harsh and Rajen Mariwala, with the remaining seven directors
(including Saugata Gupta) being professionals. As mentioned earlier, Mr.
Mariwala’s children are not involved in Marico.
 Family Group working as a managing agency: This is the closest to the Family limiting its role to being
decentralization concept espoused in William Thorndike’s celebrated 2012 book, mentors and advising only on
‘The Outsiders’, namely the family limiting its role to being mentors and advising strategic matters
only on strategic matters (like major decisions of capital allocation such as
acquisitions) rather than actively managing the company. The Tata Group
Executive Council (GEC) is an example of this model. The GEC is chaired by Cyrus
Mistry, the Chairman of Tata Sons, and consists of five professional members.
GEC members sit on the Boards of Tata Group companies to lead various
strategic functions. In this way, the management of all Tata companies (including
succession planning) remains with their individual leaders, while a GEC member
on the Board acts as a strategic oversight partner.
 Promoter grooms second generation without disrupting leadership: Promoters groom the next
Promoter involvement is higher in this case although the CEO/MD post remains generation to be non-interfering,
with a professional. The promoters take a lot of effort in grooming the next but not passive promoters with a
generation to be non-interfering, but at the same time, not passive promoters presence on the Board
with a presence on the Board. Asian Paints and Berger Paints stand out in this
regard. Asian Paints has a 14-member board which consists of six non-
executive/promoter directors (two each from the three families that own the
company), 7 independent directors and Mr. KBS Anand as CEO/MD. Similarly,
Berger Paint’s 10-member board consists of 4 family members from the Dhingra
family, 5 independent directors, and Mr. Abhijit Roy as the CEO/MD. In both
cases, promoter families have a presence on the Board, with specific duties.
However, professional management remains at the CEO/MD level.

Strategy
Insights from case studies

With the above background, we provide detailed case studies in Appendix 2 to show
the fine balance between professional management and family involvement, the role
of family disputes and the importance of succession planning. We divide
a) The Good: These are seamless transitions that happened from one generation to
another or from owner to professional. Case studies included are Asian Paints
and Marico.
b) The Bad: In this case, prolonged, often ugly, disputes occur following the transfer
of power from one generation to another. Case studies included are Apollo Tyres
and Ranbaxy.
c) The Ugly: In this case, family disputes result in disaggregation of the business.
Case studies included are Reliance Industries and Bajaj Auto
The key insights from our case studies are as follows:
The personality of the promoter: Promoter profiles have changed. The pre-license Promoters today must be
raj era promoter would look at maintaining close links with politicians to protect and collaborative
expand his business interests. As this construct becomes outdated, the next
generation of business families should look at sustaining the competitive advantages
built by their parents and build upon them. Any diversification venture should be
driven by return on capital decisions rather than by blind ambition. We believe that
promoters today must be collaborative and be open to the idea of professionals
(rather than the promoters) forming the foundation of the leadership in the FOB.
The role of professionals: The examples of Asian Paints and Marico show that the Promoters should let professionals
use of professionals in the early days of a franchise builds a work culture that, over rise through the ranks all the way
long periods of time, attracts and retains the best talent. Promoters should be open to to the CEO level
letting these professionals rise through the ranks all the way to the CEO level. The
next generation should respect the seniority of professional CEOs and not look at
them as stop-gap measures till they take over (Ranbaxy). In the absence of
professionals, family insiders and confidantes (Reliance Industries) occupy positions of
power next to the promoters, thus building a political culture of power-play.
The entry of the next generation: The next generation should be asked early on if Promoter should explicitly tell his
they are interested in joining the FOB. If yes, they should join at the entry-level and children that leadership is not
earn their spurs (Rajiv and Sanjiv Bajaj, Mukesh and Anil Ambani, Onkar Kanwar, Dr. guaranteed
Parvinder Singh). If not (Rishabh and Rishvi Mariwala), then the promoters should let
them pursue their own interests and ensure that they continue to hold their stakes in
the company. For the children who choose to stay on, the promoter should explicitly
tell them that leadership is not guaranteed just because they are related to him. As
the children rise within the organization, they should be encouraged to hire
professionals to help run the business.
Family governance: Founders must decide on allocation of ownership and An atmosphere of trust and
management of companies, especially in the handover to the next generation. An consensus within the family is
atmosphere of trust and consensus is especially critical in order to avoid showdowns critical
within the family. Founder promoters must understand that handing over their
company to the successor is important for its survival (Raunaq Singh – Onkar Singh
Kanwar, Bhai Mohan Singh – Dr. Parvinder Singh). As the families grow, promoters
have to allocate responsibilities for the next generation across family factions in
agreement with each other rather than wait for demands for a division (Ambanis,
Bajajs). Family boards and family constitutions are useful for this purpose as the
Burmans have shown at Dabur.
Corporate governance: Promoters must be open to building a Board of Directors Promoters must build a Board of
consisting of truly independent directors rather than paying lip service to regulations. Directors of truly independent
Having a Board with professionals from relevant backgrounds (Asian Paints, Marico) directors
can help in guiding the company in strategic decisions especially around capital
allocation. An independent Board can eventually become a competitive advantage
for the company.
In the next section, we use the learnings from these companies to build a checklist of
questions for company promoters to use in their succession planning. Finally, we
wrap up the report with a list of companies where our analysts believe there are red
flags over succession planning.

Strategy
Section 4: The Succession Checklist

“Eventually, I want to make myself redundant in the organization”
- Harsh Mariwala, Chairman, Marico (20137)
From the learnings gleaned from the case studies provided in Appendix 2, we provide
a checklist for investors to gauge the strength of the FOB and its vulnerability to
disputes in the coming years. These questions can be juxtaposed with the lifecycle of
an FOB (Appendix 1) for a stage-wise list of issues. Alongside each question, we also
provide concrete, real-life examples of the acceptable norm on each of these issues.
Checklist for investors

A: Family Background
 What is the age of the promoter and how long can s/he run the show? Has s/he
explicitly set a timeline for his succession?
Example: Harsh Mariwala stepped down as Managing Director of Marico at the age
of 63 years in 2014. Saugata Gupta, who was appointed as CEO in 2007, took over
as MD.
 Is the personality of the outgoing promoter such that s/he is likely to cling on to
power?
Example: As far back as 1998, the Dabur Family patriarch, Ashok C. Burman
professionalized the company and, in 2002, elevated Sunil Duggal to CEO.
 How large are the promoter families and are they known to live in harmony, both
visibly and going by primary data checks?
Example: The Murugappa family is now in its fourth generation and lives in harmony
with explicit family values and responsibilities that guide the FOB.
 Are all businesses of the family sufficient to accommodate subsequent
generations of promoters?
Example: Reliance Industries Limited is now spread across retail, telecom, and
media, over and above the core upstream/downstream petrochemicals business.
 Is the holding structure of the company complex or do owners directly own their
shares?
Example: The promoters of V-Guard hold 66% of the company in their individual
names: Chittilappilly Thomas Kochouseph holds 24%, Mithun Kochouseph
Chittilappilly holds 17%, Arun K Chittilappilly holds 13%, and Sheela Kochouseph
holds 11% in their individual names as at 31st March 2016.
 Does the family have any disputes over ownership of group companies, holding
trusts, etc. and what is the status of these disputes?
Example: Tata Sons, the holding company of the Tata Group, is majority held by
philanthropic trusts and has a long track record of harmony.
 Is the company vulnerable to a major split within family factions? Will promoter
bandwidth get exhausted in case of a major dispute?
Example: The Bill of Responsibilities for individuals in the Murugappa Group
includes, "to ensure that, in the event of disposal of the individual share of the
businesses and partnerships, such disposal is carried out in a manner that will not
jeopardize the interest of the family in any manner."
7
http://articles.economictimes.indiatimes.com/2013-10-29/news/43495927_1_soap-opera-n-harsh-
mariwala-independent-director

Strategy
B: Background of the Next Generation

 Are the promoters in sync with their next generation or is there a visible
difference in their strategy and objectives?
Example: Relations between the late Brijmohan Lall Munjal and his son, Pawan
Munjal, of the Hero Group were always cordial and in-sync. Pawan Munjal took over
as MD/CEO in 2001 and became Chairman in 2015. Throughout, Hero Moto has
maintained its dominance of the Indian motorcycle industry and withstood the split
with Honda Japan in 2010.
 Is the next generation of the promoter generally assumed to be the successor and
how qualified is he/she?
Example: Rajiv Bajaj joined Bajaj Auto in 1990, after completing his education. After
working in various departments for 15 years, he finally took charge as Managing
Director in 2005.
 Has the next generation of the promoter contributed significantly and shown
leadership so far in her/his existing role in the FOB?
Example: Mukesh Ambani had played an instrumental role in the construction of the
Patalganga polyester plant of Reliance Industries which was set up in a fast eighteen
months in 1982. He took over as Chairman in 1986, when his father, Dhirubhai
Ambani suffered a stroke.
C: The role of professionals

 What is the promoter’s track record of hiring professionals? Currently, how many
professionals are there in the FOB and at what levels?
Examples: The Daburs professionalized their company in the late-1990s. Similarly,
the promoters of Asian Paints hired professionals when they became the largest
paints company in India in the late-1960s.
 What is the senior-most position that a professional has been allowed to rise to?
Examples: Marico, Berger Paints, Asian Paints, Dabur, Godrej Consumer, are all
examples of companies that have elevated professionals, right up to CEO to lead the
company.
 What is the composition of the Board of Directors? Is the background of the
independent directors relevant to the business?
Examples: Marico and Asian Paints have boards that consist of professionals relevant
to their respective businesses.
 In case the next generation of promoters is working with the company, how is the
demarcation between them and the professionals, if any, on the Board?
Examples: Both Berger Paints and Asian Paints have family members on their
respective boards of directors with clear roles, while the company is led by
professional MD/CEOs.
 What is the organization structure? How does reporting work between senior
staff, the directors and the Board?
Example: Asian Paints has an Executive Council (EC) which focuses on vision and
strategies of the Company. The EC includes members of the promoter family such as
Jalaj Dani (President – Supply Chain, HR & Chemicals) and Manish Choksi (President
– Home Improvement, International & IT). The EC reports to the MD/CEO. Thus, while
the Board has an oversight of the company, promoter family members also have a
specific areas of responsibility that report to the MD/CEO.

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D: Succession Planning
 What is the track record of succession planning in the company? Is succession
entirely left to the promoter?
Example: While Adi Godrej remains the Chairman of the Group, he had hired a
facilitator for succession planning in 20098. Today, Godrej Consumer is led by a
professional Managing Director (Vivek Gambhir) while other companies in the group,
like Godrej Properties (Pirojsha Godrej) are led by family members who have earned
their role. Senior leadership at group companies consists of professionals like
Gambhir at GCPL, Mohit Malhotra at Godrej Properties, etc. who have been hired by
the family.
 Is there an explicit policy on succession planning? Does the Board play a role and
does the Annual Report specifically mention succession planning?
Example: As explicitly stated in its FY16 annual report, Marico has a board
committee whose terms of reference include succession planning for the board, key
managerial personnel, and senior management.
 Is there a succession planning process at the C-Suite level? Does this succession
planning extend to one and two levels below the leadership?
Example: Wipro stands out as an example. In its FY10 annual report, Azim Premji
said, “What we do in terms of our succession planning is that every position we have to
have at least three successors to that position – one on an immediacy basis, one within
one to two years and one within two to four years."
E: Family Boards
 Does the family use Family Councils or Family Boards and have they been open
enough about their functioning?
Example: The Dabur Groups uses a family constitution and family council, as stated9
by Anand C. Burman.
 Does the Family Council/Board have documented terms of reference, or a scope
of their responsibilities and duties?
Example: As stated earlier, the Murugappa Group has a Bill of Rights and Bill of
responsibilities for its family members.
 Do professionals play a key role in the Family Boards/Family Councils?
Example: The Murugappa Group is led by the Murugappa Corporate Board which
has eight members consisting of two family members and six non-family members,
who are professionals.
8
http://www.business-standard.com/article/companies/godrej-group-appoints-facilitator-for-succession-
plan-109071300089_1.html
9
http://forbesindia.com/printcontent/34203

Strategy
Prominent companies where succession beckons

Finally, we present a list of companies where a change of guard is due over the next
five years and, hence, will be an important event to watch for. The change of guard
can be at the chairman level (even if the chairman is non-executive, he tends to
influence decisions) or at the MD/CEO level. In both cases, when succession is due in
the next couple of years, clarity from management is a positive. While we admit that
this need NOT be a negative event, we highlight that change of guard at the top
holds the potential to change the direction of these companies.
Exhibit 10: Companies where we see succession planning issues in the near future
Company Chairman MD/CEO Comment
Mr. Bhadresh Shah (age: 63 years) is a first generation technocrat promoter. Whilst the
company has a number of senior marketing and manufacturing executives, the
company is mainly managed by Mr Shah. Apart from him, there is no senior person who
Rajendra Shah
has cross-functional experience. Ex-employees suggest that he keeps a tight control over
AIA Engineering (Non-executive, Bhadresh K Shah
operations, costs and capital allocation. His daughters have joined the Board in Nov-14.
independent)
Given that neither have related experience or education, the succession becomes
relevant as the company grows primarily through more international mining clients
signups.
AC Burman Mr Sunil Duggal is nearing 60 years and is a key man for the organisation. Succession is
Dabur Sunil Duggal
(Non-executive) reportedly due in 2018.
Godrej Consumer Adi Godrej Vivek Gambhir Mr Adi Godrej is 74 years old and due to retire. His progeny are on the Board of GCPL.
Mr Shiv Nadar is 70 years old and whilst his term ends in 2017, he can seek re-
HCL Tech Shiv Nadar Anant Gupta
appointment.
Mr Pawan Munjal is 61 years old. No succession plan has been announced and the firm
Hero Motocorp Pawan Munjal Pawan Munjal has no mandatory retirement age. Mr Munjal's children aren't at Hero Motocorp. Press
articles indicate nephews are being groomed to take over management.
Anand Mahindra is 61 years old. He has two daughters but they do not appear to be
interested in M&M (none of them are involved in the company). Divya Mahindra
M&M Anand Mahindra Anand Mahindra
married10 in 2015 and is now based in New York, and Aalika Mahindra, also based in
New York, is involved in film making/photography11.
Mr S.K. Poddar (69 yrs old) has built Mayur Uniquoters over the last 40 years. Whilst his
son, Manav has been working alongside him for nearly two decades now, we note that
Mr Poddar is still actively involved in all decisions – capital allocation, hiring of people,
Mayur Uniquoters SK Poddar SK Poddar
pricing of supplies to customers. Lack of experienced senior personnel in the company
implies that the successor has to be from within the family. Apart from his son, his son-
in-law is also active in the company.
Mr M.P. Taparia (74 yrs old) has been managing Supreme Industries for nearly 50
years. Whilst his family members are involved in the business, there is no clear
B L Taparia (Non-
Supreme Industries M P Taparia indication in regards to who will succeed him. Succession will become a critical issue as
Executive)
not only does Mr M.P. Taparia handles all capital allocation decisions, he also handles
product portfolio expansion and many day to day decisions.
Mr C.P. Gurnani, a key leader for TechM, is 57 years old. As yet, no successor has been
Tech Mahindra Anand Mahindra CP Gurnani
officially announced.
Whilst Mr Mittal (age: 55 yrs) is not looking at retiring any time soon, he will have to
soon look for a CEO to manage a company with operations across 22 countries.
Managing people across cultures in a government dependent business is not easy; Mr
BD Narang
VA Tech Wabag Rajiv Mittal Mittal’s success has been on account of the cult-like following he has with his staff,
(Independent)
several of whom came with him at the time of the acquisition of Indian entity (in 2005)
and later global entity (in 2007). Given the lack of senior talent in water engineering
industry, finding a CEO-leader could become a challenge.
Mr Premji has named his son, Mr Rishad Premji, as a successor and has explicitly said
Azim Premji (also AZ Neemuchwala
Wipro that his son will not be CEO, but will represent promoter ownership on the company’s
MD) (CEO)
board.
Mr Subhash Chandra is 65 years old and remains an instrumental presence. While his
Subhash Chandra children, Mr Punit Goenka (MD & CEO) and Mr Amit Goenka (CEO-International
Zee Entertainment Punit Goenka
(Non-Executive) Business) lead the company, we believe that Zee still faces key man risk given the
centrality of Mr Subhash Chandra.
10
http://economictimes.indiatimes.com/magazines/panache/anand-mahindras-daughter-divya-had-a-
super-quiet-wedding/articleshow/47906198.cms
11
http://indianquarterly.com/a-conscious-uncoupling/

Strategy
Appendix 1: Lifecycle of an FOB, its

problems, and solutions
Lifecycle of an FOB
Like any business, FOBs have a lifecycle too. We track this lifecycle across three
phases: Youth, Prime, and Transition, which are parallel to a promoter’s biological
lifecycle. We highlight that this cycle will play out for every generation of the
promoter, assuming that the FOB survives over time. Hence, well-managed
transitions can rejuvenate FOBs landing them back at the Youth phase. Many FOBs in
India are more than 100 years old (e.g., Tatas, Daburs, Wadias of Bombay Dyeing,
Kirloskars, etc.) but not all of them are as large and influential as they once used to
be. For FOBs, surviving is easy, but thriving and taking advantage of new
opportunities require effective succession planning.
Exhibit 11: Various stages of an FOB The lifecycle of the FOB run
Youth Prime Transition parallel to a promoter’s biological
Single or limited product Products become market Products have sustained lifecycle
Characteristics portfolio, that meets with leaders or in Top 5 of their leadership but competition is
success and grows rapidly categories creeping up
Promoters remain leaders,
Promoters are prime drivers Promoters are still active but
ambitions have grown larger,
of their business, fuelled by due for retirement in next 5-
but operation level work has
ambition 10yrs
been delegated
Second generation is young Second
The first generation of family
and joins the company at a generation/professional CEO
is in charge
junior level is due to take charge
Duration 15 to 20years 10 to 15years 3-5years
Examples Asian Paints (1942 to 1967) Reliance Industries (1980s) Hero Moto (current)
Ranbaxy (1952 to 1970) Bajaj Auto (1980s) Godrej Consumer (current)
As the company grows and families expand over time, the FOB structure becomes As the company and family grows,
complex. Leach and Dixit explain this complex structure using a three-circle model the FOB structure becomes
that comprises the family, the owners and the business. We have given this structure complex
in the exhibit below.
Exhibit 12: Interlocking Systems: The Three-Circle Model
Source: ‘Indian Family Business Mantras’ by Peter Leach and Tatwamasi Dixit, Ambit Capital research
In the above exhibit, Leach and Dixit have described the areas in the circles as
follows. We add examples to each category:
1-3: Individuals in these sectors have only one connection with the business – they
are family (family members of owners), or they are owners (Tata Sons), or they are
employed by the business (professional CEOs such as K.B.S. Anand of Asian Paints,
Saugata Gupta of Marico, etc.)

Strategy
4: This sector is within both the family and ownership circles and, therefore,
comprises family members who own shares in the business but are not employees
(eg: Rishabh and Rishvi Mariwala own Marico shares but do not work with Marico).
5: Owners who work in the business but who are not family members. (eg: Danis,
Choksis and Vakils are promoters of Asian Paints).
6: Family members who work in the business but who do not own shares. (eg:
typically extended family that works in the company and is related to the founder but
does not own any shares in the FOB)
7: Owners who are family members and employees in the FOB (Ambanis, Birlas).
We now show how the entry of professionals and succession should ideally be
planned at each phase to make these phases (Youth-Prime-Transition and back to
Youth) as the ideal template for an FOB.
Youth phase:
We define the youth phase as the period spanning the birth of the business till the Youth phase lasts from birth till
promoter(s) aggressively expands the business. Examples of this phase include Bhai aggressive expansion
Mohan Singh and Ranbaxy’s early days. In his book, “Business Battles”, Shyamal
Majumdar, writes, “Even though he had no knowledge of the pharmaceutical business,
Bhai Mohan could sense the potential that the industry promised. He made some smart
moves after the (Ranbaxy) acquisition and soon graduated from distribution to
manufacturing drugs. Bhai Mohan saw a business opportunity in the manufacture of
copycat drugs which, given the patent regime in India at the time, was legitimate and
also a precursor to Ranbaxy becoming a global name in the generics business."
Another example of this phase is Asian Paints in its early years, when Champaklal
Choksey and his partners found success by selling paints directly to shopkeepers in
rural areas, after failing to find a market in urban regions.
First generation entrepreneurs start young, though there is no standard age for the
Indian entrepreneur. Dhirubhai Ambani started in his 20s, Rahul Bajaj joined Bajaj
Auto when he was 26. In 1938, when JRD Tata was appointed chairman of the Tata
Group at age 34, he was the youngest member on the Tata Sons Board. Among the
younger companies, Sandeep Engineer incorporated Astral Poly in 1996 at 35.
In this phase, the promoter should look at adopting the following practices:
1. Employ professionals: While the promoter is the sole driver of the business, he Promoter should look at people
should be open to looking at people with ideas to help him drive the early phase of with ideas to help him drive the
the business. He can look for young and vibrant talent that matches his levels of drive early phase
and ambition. Co-founders (eg: the founding promoters of Asian Paints) fill this gap
at this early stage, which is why sole promoters should look for external talent.
For example, Sandeep Engineer of Astral Poly appointed Hiranand Savlani as Astral’s
Chief Operating Officer. Savlani is a Chartered Accountant (CA), Cost Accountant
(ICWA), Company Secretary (CS), and also holds a degree in Law (LLB). Savlani was
entrusted with setting up Astral’s new plant at Baddi. Engineer also hired Sanjay Shah
to run the day-to-day operations at Baddi. Savlani and Shah ensured that the Baddi
operations didn’t require constant oversight from Engineer and he could remain
focused on Astral’s marketing and brand building. In fact, Engineer also hired Mayur
Vakil, a veteran of the plastics industry, as President of Astral Poly in 2004. While
Vakil quit Astral in FY10, Engineer stands out as an example of an entrepreneur
willing to hire professionals early in the FOB lifecycle.
Among older families, the Birlas were famous for hiring Chartered Accountants. In
her book, “Business Maharajas”, Gita Piramal quotes the late Aditya Vikram Birla on
this preference, “I have nothing against MBAs. They are brilliant boys, extremely bright
and enterprising. There is nothing wrong with the man, but the training that is given is
better suited to multinationals. CAs have a very good background. Their whole
educational upbringing is such that they have a very good grasp of the basics, of all
that is happening in India, in company law, in accounting.” Similarly, Harsh Mariwala
at Marico also hired professionals in four critical areas, advertising, marketing,
human resources, and distribution to build out the early phase of his edible oil and
hair oil business.

Strategy
2. Define transition: While this might appear too early for the promoter, he must Large families should define
plan for the future of the FOB. Legal documents such as the will should be prepared shareholding structure to avoid
with enough clarity on who will inherit the business to avoid future conflict (eg: media future conflict
reports12 state that Dhirubhai Ambani had died intestate since he assumed his sons
would remain united). Large families should define and create shareholding
structures for companies within the family group to avoid future conflict. Complicated
holding companies and ownership structures can potentially create problems later.
For example, in 2005, the Birla Family saw a dispute over the ownership of Pilani
Investments, the holding company of the family’s stakes in various companies.
Prime Phase: In the prime phase, the promoter is

at his peak and his company has
By this time, the promoter is at his peak and his company has found its groove. found its groove
Professionals, if hired earlier, have grown into leadership positions but the family is
firmly in charge of all strategic decisions. If professionals have not been hired, the
promoter must ensure that he gets them on board at this phase. The company’s
products are in the Top 5 of their categories and promoter ambitions have, naturally,
grown larger. Examples include Rahul Bajaj and Dhirubhai Ambani at the peak of
their game in the 1980s. As Piramal notes in her book, "In the 80s, Reliance grew at
an astonishing 1100 per cent, with sales moving up from `2bn to `18.4bn, but it wasn't
India's fastest growing company. Its expansion trailed behind Bajaj Auto's incredible
growth rate of 1852 per cent. Under Rahul Bajaj, the Pune-based scooter company's
sales swelled from `519m to `18.5bn during the same decade. Both Reliance and Bajaj
Auto are lean and owner-driven corporations, yet in terms of character, style,
background - every parameter that counts - there couldn't be two more dissimilar
chairmen than Dhirubhai Ambani and Rahul Bajaj."
1. Change mentality: At its peak, the promoter must gear up to move to a role Promoter must move to a role that
that focuses on ‘vision, values, and strategy’. The promoters must start thinking of focuses on ‘vision, values, and
building institutions, rather than growing their business. While businesses might strategy’
struggle with choosing a leader, institutions do not face any difficulty with change
in leadership. Hence, the FOB must have its own distinct identity and a clear
sense of purpose. Ideally, the promoter must look at himself as a custodian of the
business, of the resources, and of the family’s values. For example, the Tata
Group’s purpose, as per its website, is summarized in two succinct paragraphs:
“At the Tata group we are committed to improving the quality of life of the
communities we serve. We do this by striving for leadership and global
competitiveness in the business sectors in which we operate.
Our practice of returning to society what we earn evokes trust among
consumers, employees, shareholders and the community. We are committed to
protecting this heritage of leadership with trust through the manner in which
we conduct our business.”
The website goes on to list integrity, understanding, excellence, unity, and
responsibility as its core values. Similarly, the Murugappa Group’s website states
that it “...is inspired by a set of enduring values and beliefs called the ‘Five Lights’ –
a guide to everyday excellence. It clearly defines a way of life, and is demonstrated
by these strong values we live by: Integrity, Passion, Quality, Respect and
Responsibility.”
2. Handle children: In case the promoter’s children have decided to join the family Promoter’s children must be
business, they must be groomed from the bottom up instead of joining the groomed in the business from the
company directly at the Board level. In case the Promoter still wants her/his child bottom up
on the Board, s/he can provide her/him with a specific area to look at while
leaving overall leadership with herself/himself or, even better, with professionals.
Sudarshan Chemicals, founded by Dr. R.J. Rathi in 1950, stands out as an
example where the founder laid down ground rules for his children. In his book,
'The 10 Commandments for Family Business", author Kavil Ramachandran writes
about the key principles Rathi set for himself and the family:
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Strategy
 “Family members will be permitted to join the business if they have graduated
in chemical engineering from a reputed US university, preferably with an MBA
from another famous institution.
 Family employees will be treated on par with other employees in terms of
attendance, salary, leave, and other rules. They have to eat from the canteens,
like other employees.”
Hence, the FOB must accept the children on their individual strength and not on
blood ties with promoter. For example, Rajiv Bajaj joined Bajaj Auto in 1992 but
was elevated to Managing Director only in 2005 (albeit, after it was clear that
Bajaj Auto would be led by Rahul Bajaj’s sons) after proving his abilities and
shifting Bajaj Auto towards motorcycles away from scooters in line with market
realities.
3. Employ and elevate professionals: In case founders haven’t yet hired Hiring professionals is critical in the
professionals to run senior roles, they should do so now. Hiring professionals is prime phase
critical in the prime phase as the founder might be overwhelmed by increasing
complexities for expansion. For example, while the FOB’s products might have
succeeded with the target audience in his hometown, the founder might be at a
loss to expand across India. Some of the key areas where promoters might be out
of their depth and need professional supervision are distribution models, supply
chains and advertising and communication. For example, each area in India
responds to different types of ads. Hoardings work in the south but not in the
north and west. These nuances may be lost on the promoter and can be
addressed by hiring professionals to run these functions.
Professionals already in senior roles should be promoted and given more
responsibility. These professionals should also be encouraged to build a unique
work culture (discussed in the next point). Besides Asian Paints, Berger Paints and
Marico, the Murugappas and the Burmans of Dabur stand out as families that
induct professionals early and groom them for senior roles even as family
members retain overall control of the company. Similarly, each business of
Godrej Industries is headed by a non-family CEO or COO. M&M has a
professional Executive Director (Pawan Goenka) for its auto and farm business,
while Anand Mahindra remains the chairman.
4. Nurture a distinctive work culture: A growing FOB is an opportunity for the A decentralized structure that
promoter to nurture a unique work culture instead of remaining a ‘command and releases entrepreneurial energy
control’ outfit. William N. Thorndike’s classic, ‘The Outsiders’, provides a useful and keeps costs and rancor down
decentralized structure that releases entrepreneurial energy and keeps costs and
rancor down. In Chapter 9, titled “The Outsider’s Mindset”, Thorndike writes,
“The outsider CEOs were master delegators, running highly decentralized
organizations and pushing operating decisions down to the lowest, most local
levels in their organizations. They did not, however, delegate capital allocation
decisions. As Charlie Munger described it to me, their companies were “an odd
blend of decentralized operations and highly centralized capital allocation,” and
this mix of loose and tight, of delegation and hierarchy, proved to be a very
powerful counter to the institutional imperative.”
This decentralized structure, which empowers executives and places the family-
owners in a mentoring capacity, de-risks the firm from promoter/key-man risk
AND de-risks it from succession planning issues. Harsh Mariwala is a good
example of this approach. As he told us in November 2015, “I strongly believe
that culture can be a source of competitive advantage in an organization and it’s
impossible to copy. The organization’s culture is a major driving force in the
execution of strategy. Correct culture helps in proper execution of strategy by
helping everyone align on the same page.” Our February 2016 Coffee Can
Legends report on Marico (click here) deals with this aspect at length and how
Marico’s unique work culture is its competitive strength against MNC FMCG
companies that are much larger.

Strategy
5. Constitute an independent Board of Directors: The promoter should look at

inducting professionals in the Board of Directors instead of filling it with friends Boards of both Asian Paints and
and family to meet the legal requirement of having half of the board as Marico are relevant examples of
independent directors. The presence of these independent professionals with their professionalism
collective experience helps in guiding the company through key strategic
moments. The boards of both Asian Paints and Marico are relevant examples in
this regard. In the case of Asian Paints, 7 of 14 directors are independent
professionals with relevant experience, and in the case of Marico, 6 of 9 directors
are independent professionals with high pedigree.
Exhibit 13: Background of Independent Board of Directors on Asian Paints
Name On Board since Background
Was Chairman of State Bank of India till August 1995.

15th April,
Dipankar Basu Member of Government's Divestment Commission (1996-99).
2000
Advisor to the Government on banking sector reforms (1997).
Bestowed with "Padma Shri" in 2006.
4th July,
Dr. S. Sivaram More than 30 years’ experience in research on polymer synthesis.
2001
Serves on the editorial board of several journals in chemistry and polymer science.
Was Managing Director of The Indian Card Clothing Co. Limited (1985-2001)
6th June,
Mahendra Shah Was Chairman of panels of Textile Machinery Manufacturers’ Associations.
2001
Holds a B.E. degree in Electrical Engineering and a Master’s degree in Industrial Engineering.
Recipient of Padma Bhushan in 2006 and CBE (a grade within the British order of chivalry) in 2009.
16th September,
S. Ramadorai Was CEO and MD of TCS (2004-09); 32 years of total work experience at TCS.
2009
Advisor to the Prime Minister in the National Skill Development Council.
Inducted into the Board of HUL in 1995 as a Whole time Director.
M. K. Sharma 25th October, 2012 Vice Chairman of HUL (2000-07).
Completed PGDPM and Diploma in Labour Laws from Indian Law Institute, Delhi.
Was part of the founding team of Titan Watches, and founding team employee of Pepsico India.
14th May,
Mrs. Vibha Paul Rishi Was Director, Marketing and Customer Strategy at the Future Group.
2014
17 years’ experience at PepsiCo in marketing and innovation roles in India, US and UK.
Was MD of HDFC Ltd. from 1993 to 2002.
30th May,
Deepak Satwalekar MD & CEO of HDFC Standard Life Insurance Co. Ltd (2000-08).
2000
Chaired and been a member of expert groups related to industry, Government and the RBI.
Source: Industry, Ambit Capital research
Exhibit 14: Background of Independent Board of Directors on Marico

Name On Board since Background
MD and CEO of United Spirits since 2014
Anand Kripalu 2007 Was MD and President of India and South Asia with Mondelez International till Sept 2013
Was MD for Unilever's East Africa operations; 22 years’ experience in HUL
Chairman of Apcotex Industries Ltd and Apco Enterprises Ltd.
Atul Choksey 2001 Was MD of Asian Paints from 1984 to 1997; 24 years’ experience in Asian Paints
Was President of the Bombay Chamber of Commerce & Industry of India 1993-994
Vice Chairman and Non-Executive Director of Shoppers Stop Ltd since 2009
B. S. Nagesh 2010 Chairman of Retailers Association of India; 24 years’ experience in retail industry
First Asian to be inducted into the “World Retail Hall of Fame” 2008
Was Vice President and Global Head of HR for Infosys Group
Hema Ravichandar 2005 Was the Chairperson for The Conference Board's HR Council of India & Member of the National HRD
Network of India; 28 years of experience in HR
MD of MF Advisors Pvt. Ltd.
Nikhil Khattau 2001 Founding CEO of SUN F&C Asset Management which was sold to Principal Financial Group, USA in 2004.
On the Board of the national board of advisors of AIESEC in India.
MD of METRO Cash & Carry India Pvt. Ltd.
Rajeev Bakshi 2003 Was Joint MD of ICICI Venture Funds Management Company Limited
Was MD of India operations and South African business in Mondelez India Foods.
6. Family Councils: As promoter families grow large, they should consider setting A Family Council can lay down
up a Family Council that consists of family members. A Family Council, including rules, regulations, structures within
– if the family is large enough – a Family Constitution can lay down rules, which the family will operate
regulations, structures within which the family will operate. It can also define a
procedure for succession planning in order to avoid uncertainty. Family Council
meetings should be held at least once a quarter with contributions from each
family member. The performance of these contributions from the respective
members should also be reviewed in these meetings. Examples of families that
have made a Family Constitution include the Jhawars of Usha Martin Group, the

Strategy
Agarwals and Goenkas of Emami, and the Raos of GMR Group. Prominent family
groups that have set up Family Councils or Family Boards include the Adi Godrej
Group, the Murugappas and their Murugappa Corporate Board (which has 2
family members and 6 non-family members), and the Burmans of Dabur (whose
Family Council13 has 10 seats, of which 4 are occupied by family members).
7. Succession Planning: This is the right time for the promoter to actively consider Succession planning should include
who will be his successor - either from within the family or a professional. promoter and all ‘C-Suite’
Succession planning should extend beyond the promoter/founder to include all executives
‘C-Suite’ executives. Hence, every ‘Chief’ of a function should ensure succession
planning for his own job as well as one to two levels below him. This will ensure
the survival of the FOB into the long term and help transition the FOB to an
institution, rather than just a company.
Wipro stands out as an example here. In an interview14 in 2014, then CFO Suresh
Senapaty said, “For us, succession planning is a process in which for every
individual in a critical position, a successor has been planned. The successor is a
potential replacement who could take charge immediately. There is succession
planning for all of us, whether it is (chairman Azim) Premji, (chief executive T K)
Kurien or me. Even for our direct reports, we have succession planning in place.
This plan goes two levels below.”
Family Boards and Family Councils can have healthy discussions on the change in
command in the next phase so that there is no ambiguity among family members
about the change in command. Succession planning should also include who will
be the successor in case the promoter suddenly dies. Marico divided succession
planning in two parts: defining a process for a ‘drop-dead successor’, and
developing internal talent. In case of an emergency, the drop-dead successor
would only be an interim-CEO until the Board identifies a replacement.
Transition phase:
By this time, the FOB is a market leader with competition likely creeping up. The The promoter has given his best
promoter is well past his prime having given his best years to building the company years to building the company and
and bringing it to a leadership level. Almost all FOBs reach this phase as generations bringing it to a leadership level
change guard. Owner promoters must be prepared to let go of their organizations
and move to a mentoring/advisory role. Currently, we see Godrej Consumer at this
sensitive point given that Adi Godrej is 74 years old. Similarly, Hero Motocorp is also
at this point since Pawan Munjal is 61 years old with no clear indication as to who
will take over from him.
1. Choose successor: At this stage, the announcement of a successor should be The announcement of a successor
inevitable rather than uncertain. Uncertainty fuels speculation, creating a should be inevitable rather than
negative atmosphere. Unexpected surprises tend to bring family disputes out in uncertain
the public. Examples include: Ranbaxy – Dr. Parvinder Singh hired professionals
to lead the company much to the consternation of his father, Bhai Mohan Singh;
and Reliance Industries – the tiff between Mukesh and Anil Ambani came out in
the open after Dhirubhai Ambani’s death. In comparison, the Tata Group stands
out as one where the transition from Ratan Tata to Cyrus Mistry has been smooth,
while the previous transition from JRD Tata to Ratan Tata was acrimonious
following the power struggle between Ratan Tata and Russi Mody. If the owner’s
children were inducted in the prime phase and given line responsibilities, then
the owner must choose who, among his children, is best qualified to succeed.
Many FOBs in the Nifty have made the transition to professional CEOs. Excluding
the Tata Group which has a history of professional CEOs at individual companies,
these FOBs include Asian Paints (KBS Anand), Bharti Airtel (Gopal Vittal), HCL
Tech (Anant Gupta), Idea Cellular (Himanshu Kapania), Tech Mahindra (C.P.
Gurnani), and Wipro (Abidali Neemuchwala).
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consumer-company-dabur-in-1998-and-reaped-rich-rewards/#6fdc1527538b
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http://www.business-standard.com/article/companies/wipro-confident-about-succession-planning-says-
senapaty-114081300835_1.html

Strategy
2. Move to non-executive chairman/mentor role: With a professional CEO in The promoter should become an
charge, the promoter should become an advisor/mentor to the CEO and limit his advisor/mentor to the CEO
involvement to Board meetings and key strategic decisions. Speaking about his
role in Dabur India, Dr. Anand Burman, Chairman, said in a 2012 interview,
“There are certain decisions in which the family is always involved. For instance,
I’m involved in personnel (recruitment) above a certain level. Other areas include
acquisition and disposals (of an asset above certain value) and capital expenditure
above a certain limit. I don’t get involved if an old machine has to be sold. But if it
is a factory, then I do. Every three or four years, we have a strategy review, which
has to be cleared by the family.” To be clear, we are not advocating that the
promoter leave the company completely. Indeed, far from retiring, the owners
must play a mentorship role in guiding the next generation. In today’s context,
they would become ‘Chairman Emeritus’ of their FOBs. Examples include Ratan
Tata and Narayan Murthy. Examples of founders who are now Chairmen include,
Azim Premji, Shiv Nadar and Harsh Mariwala. This will ensure that the collective
experience and expertise of the founder is still available for the FOB.
3. Family Council: Family Council meeting should be routine affairs. The family Murugappas and Dabur stand out
patriarch, now retired from his company, can ensure that family ties are cordial as examples of Family
and the ambitions of all family members are satisfied. His wealth of knowledge Board/Family Councils
and experience should be used by subsequent generations to further the FOB
and, more importantly, ensure that the family sticks together. Again, the
Murugappa Corporate Board (headed by A Vellayan, 63 years old) and the Dabur
Family Council stand out as relevant examples. The Murugappa Group even has
a bill of rights and responsibilities15 for their family members. For example, the
bill of rights confers many rights on each male family members, such as “the right
to be given an opportunity to work in any of the Group companies provided he has
an aptitude for the job”. The bill of responsibilities calls for individuals to the
family to, for example, “uphold the tradition, reputation, and values the family
stands for.”
What could go wrong?

Our suggested lifecycle of youth-growth-transition is based on the promoter’s
biological cycle. We recognize that reality can be very different in each phase given
emotions and ambitions involved in family ties. We now discuss the unique problems
that FOBs can face. We also contemplate some solutions that might work in these
cases.
Disputes between founders and their children, and between siblings
FOBs are vulnerable to the following problems that often cause rifts between
founders and their children, as well as between the founder’s children:
a) Disagreements over how the business should be run: Clash of egos and Clash of egos and over-arching
over-arching ambitions are reasons for rifts between promoters. In case of ambitions are reasons for rifts
Ranbaxy and Apollo Tyres in the 1990s, we have seen how father and son fought between promoters
over how the business should be run. In case of Ranbaxy in 1999, while Dr.
Parvinder Singh favored professionals to lead Ranbaxy, his father, Bhai Mohan
Singh preferred control to remain with the family. In “Business Battles”, Majumdar
writes, “His son’s action rattled Bhai Mohan. And that is what, many believe, drove
him to assert his role as family patriarch and not let emotions come in the way of
doing his duty.” In case of Apollo Tyres, Onkar Singh Kanwar believed that his
father could not handle change in business environment. Majumdar writes, “This
perceived inability, on the part of his father, to manage the business environment
would later become a recurring theme in Onkar Kanwar’s decade-long, very public
battle with him (Raunaq Singh).”
Possible solutions: Families should be frank and open in their communication Families should be frank and open
with their children. There is no formula for this but a relationship of trust between in their communication with their
parents and children needs to be built and maintained to avoid children.
15
Source: The 10 Commandments of Family Business by Kavil Ramachandran.

Strategy
misunderstandings and miscommunication. An open communication system

builds trust and this is invaluable in times of crisis. Parents can likely look for
leadership traits within their children as they grow and communicate with them
as to their future in the business. If things get worse, family insiders, family
confidantes, influential lawyers, and chartered accountants, are normally used as
mediators to resolve issues. S. Gurumurthy, for example, was a mediator in the
Bajaj family dispute.
b) Favouritism in succession and inheritance: Fathers choosing their favourite Extended families can cause strife
children is a natural tendency. However, when it comes to business, with when it comes to choosing
extended families, this is another cause of strife. In the case of Bajaj Auto, successors
Kushagra Bajaj held ambitions of running Bajaj Auto only to find that his uncle,
Rahul Bajaj, chose his own sons (Rajiv and Sanjiv) instead of him. This resulted in
an ugly, public spat that ran from 2001 to 2009. In the case of Ranbaxy, Bhai
Mohan Singh’s sons, Manjit and Analjit, were dissatisfied when the crown jewel
of the family, Ranbaxy, went to Dr. Parvinder Singh. This resulted in a long-
standing war between the families that was eventually settled in 2006. When
Priyamvad Birla died in 2004, her will bequeathed her fortune to R.S. Lodha,
which caused a huge dispute between the Birlas and Lodha. The Birlas are no
strangers to strife over inheritance. In the 1980s, 6 branches of the Birla clan
were fighting over the empire of GD Birla, the best of which was left for his son
BK Birla and his son AV Birla. And finally, the Kirloskar Group saw a major
dispute break out after the death of founder-patriarch, Shantanu Kirloskar, over
inheritance of the family business. Eventually, the dispute16 between Vijay
Kirloskar (Kirloskar Electric) and his nephews Atul, Sanjay, and Rahul (Kirloskar
Brothers, Kirloskar Oil Engines, Kirloskar Pneumatics) ended in 2002 when the
warring factions sold their stakes in group companies to each other so that each
family member got what he wanted.
Possible solutions: Once again, open and honest communication between
members goes a long way in building trust. Disagreements should not lead to
disenchantment and estrangement. For any family, it is critical to build respect
and tolerance for diverse views instead of an atmosphere of jealousy and Open and honest communication
insecurity. Open channels of communication and a forum (like a Family Board of between members goes a long way
Family Council) are also critical mechanisms. Succession planning can then in building trust
become a process decided in advance and in consensus with all family members,
including seniors. This avoids acrimony at the time of the death of the patriarch.
A family constitution and a family council should be useful in resolving matters
over succession and inheritance.
c) Sibling rivalry: Sibling rivalry is common and, perhaps, inevitable. As a positive,
it fosters healthy competition within the family. As a negative, it causes
resentment and bitterness. Sibling rivalry is a very common cause of family battles
– one generation of Bajaj brothers (Rahul Bajaj versus Shishir Bajaj) to another
(Rajiv versus Sanjiv); the Ambani scions (Mukesh versus Anil); and even families of
yore like the Chhabrias (Manohar versus Kishore) are prime examples. It can
impact any FOB model that survives beyond one generation since battles
between cousin brothers (Birlas, Bajaj) are also common.
Possible solution: What works to resolve father-son discord should work for
sibling rivalry too, namely, open and transparent communication, the
involvement of elders and family confidantes. Parents can give specific businesses
and responsibilities to each sibling and let them compete. Parents would also do
well to define, in advance, the role of each sibling when they join the business.
16
http://www.livemint.com/Home-Page/TWDuj9uEP602NN17nqzmAO/Kirloskars-untangle-
crossholdings.html

Strategy
Problems related to the alpha male personality

The flip side of an entrepreneur with ambition and energy is the possibility of a Founders who have retired can still
dominating, alpha male personality. Often enough, their ambitions consume their continue to pull the strings in the
lives and even family members pay the price in terms of family disputes. From background
Dhirubhai Ambani and Rahul Bajaj to Bhai Mohan Singh, there is no dearth of
examples of motivated business founders driven by their ambition to establish
empires. Even in the case of founders who have retired as chairmen, they continue to
pull the strings in the background. In such cases, even if the son has been elevated to
a CEO/MD position within the company, the real control and command will still lie
with the patriarch.
For example, in case of Zee Entertainment, our primary data research indicates that
Mr. Subhash Chandra, 65 years old, still plays an important role in key decisions such
as senior management appointments although his son Punit Goenka, 41 years old,
was appointed MD and CEO in FY08. Clearly, this is in stark contrast to the glowing
words that Mr. Chandra had to say about his son, in his book “The Z Factor” where
he says, “The success which he (Punit) has achieved in the entertainment content
business as CEO of Zee Entertainment has given him confidence and helped him
improve as an entrepreneur. He brought stability to the company. The flagship channel
has come from the fourth position to being number 2.”
Hence, promoters who refuse to let go of running the company can become a Promoters who refuse to let go can
hindrance to the future of the FOB. Truly letting go is difficult and even if the become a hindrance to the future
promoter does let go, there is a chance he will return.
A recent, high-profile, and international example was the resignation of Nikesh Arora
from Softbank. Arora, at one time Google’s highest paid employee, joined Softbank
in 2014. In 2015, Softbank founder, Masayoshi Son, anointed Arora as his successor,
a rarity in Japan where outsiders don’t normally run FOBs. A year later, Son changed
his mind and on 21st June 2016, Arora announced his resignation from Softbank.
Subsequently, the Financial Times reported17 Son as saying, “I know I should not be a
hindrance to SoftBank’s future growth and that I need to pass on the baton to the
younger generation. But I’ve become greedy again and I want to continue as chief
executive for a bit longer. I’ve come to a realisation once again that I’m young. Please
let me lead a bit longer.”
Thus, a dominating alpha male promoter’s refusal to let go poses a key risk to the
FOB. In their book, Leach and Dixit quote a 2009 survey18, "In a recent survey, when
CEOs of Indian family businesses were asked when they plan to retire or turn over the
leadership of their companies, an astonishing 52.2 per cent said they planned to work
in their current position until they died. In the United States, the comparable figure was
16 per cent."
In the table below, we provide a list of some of the longest serving chairmen of
India’s Nifty companies of FOBs. We add L&T and ITC to show that even in
professionally owned companies, a chairman can have a long tenure.
17
https://next.ft.com/content/2d2ff4be-3825-11e6-a780-b48ed7b6126f
18
http://www.baylor.edu/business/research/index.php?id=68729

Strategy
Exhibit 15: Tenures of some of India's oldest corporate leaders

Family Chairmen Tenure (From-To) Years Status
Tatas JRD Tata 1938-1988 50 Deceased

Mahindras Keshub Mahindra 1963-2012 49 Retired from company
Ambanis Dhirubhai Ambani 1977-2002 25 Deceased
Wadias Nusli Wadia 1977-present 39 Active
Infosys N R Narayana Murthy 1981-2011 30 Retired from company
Hero Moto Brijmohan Lall Munjal 1984-2015 31 Deceased
Tatas Ratan Tata 1991-2012 21 Retired from company
Mittals Sunil Bharti Mittal 1995-present 21 Active
AV Birla Group KM Birla 1995-present 21 Active
L&T AM Naik 2003-present 13 To retire in 2017
ITC YC Deveshwar 1996-2016 20 To retire in 2017
Source: Business Standard19, Company, Ambit Capital research
Founders should pick successors

far ahead of retirement
Possible solutions: The founder must accept the fact that at some point of time – if
he wants his business to endure – he must let go. They should pick successors far
ahead of retirement and have open and frank discussions with their children. This
will avoid turmoil later. A family confidante, insider, or even taking professional help
in choosing a successor can provide much-needed objectivity in this critical decision.
In the next appendix we highlight case studies where succession planning has worked
and where disputes have broken out within the promoter family.
19
http://www.business-standard.com/article/companies/deveshwar-to-step-down-from-executive-role-at-
itc-116062101123_1.html

Strategy
Appendix 2: Case studies of FOBs and

succession planning
We highlight how good companies provide for succession planning and show how in-
fighting and family disputes ruin the scope for any succession planning and, in the
worst case, result in breakups of the FOB. Many families – such as the Mafatlals,
Modis, Kirloskars, BPL, etc. – have seen a decline in their prominence after disputes
within in the family.
a) The Good: These are seamless transitions that happened from one generation to Seamless transitions from one
another or from owner to professional. There are many examples of good generation to another or from
transitions – the AV Birla Group survived the untimely death of Aditya Vikram owner to professional
Birla, the Murugappas have an open and transparent way of separating
ownership from management, and the Tata Group has handled transitions at the
top as well as within their companies very well. Similarly, Anand Mahindra took
over from Keshub Mahindra in 2012 and has professional CEOs for the Mahindra
Group’s various businesses.
In this category, we discuss Asian Paints and Marico as FOBs where the owners
separated ownership and management effectively. Both companies are part of
our 2014 Coffee Can Portfolio (click here) and have sustained 10% revenue
growth and 15% ROCEs for a long period of time – an achievement that only
0.5% of listed Indian companies can lay claim to.
Case studies discussed: Asian Paints, Marico
b) The Bad: In this case, disruptive squabbles and bickering follows the Succession planning is severely
death/retirement of the founder-patriarch, but after the disruption a solution is hindered due to in-fighting among
found and the business moves forward more or less intact. Disputes are family members
eventually resolved when family members agree on who runs what business.
Under this category, we discuss Apollo Tyres and Ranbaxy. Both are large
companies that witnessed serious family disputes. While Apollo Tyres survived,
Ranbaxy was eventually sold off to Daiichi Sankyo, which then went on to sell it to
Sun Pharma.
Case studies discussed: Apollo Tyres, Ranbaxy.
c) The Ugly: In this case, promoter bandwidth is exhausted solving disputes within Disputes after death/retirement of
the family. Public slanging matches after the death/retirement of the promoter promoter have the potential to
have the potential to disaggregate the business. Hence, there is no scope for disaggregate the business
discussing succession planning since it is unclear which family member will
acquire which part of the family business.
Under this category, we discuss two of India’s most high-profile break-ups and
demergers, namely, Reliance Industries and Bajaj Auto. In both cases, disputes
within the family led to demergers of the largest listed company within the FOB.
Case studies discussed: Reliance Industries, Bajaj Auto

Strategy
The Good – succession plans that worked

Case Study 1: Asian Paints
Family Background: Asian Paints is India’s largest manufacturer of paints. It was Asian Paints was founded by four
formed in 1942 by four friends: Champaklal Choksey, Chimanlal Choksi, Suryakant promoters, of which one moved
Dani, and Arvind Vakil. While Champaklal Choksey was mainly responsible for the out in 1997
early growth of the company (such as hiring professionals from India’s foremost
management institutes, using computer technology much earlier than competition),
the Chokseys sold their stake in 1997. Since then, the remaining families have lived
in harmony while allowing professionals to run the company. The effectiveness of this
structure is evident in the fact that Asian Paints continues to maintain its huge
leadership in the paints industry. Berger Paints, the #2 player, has been run by CEOs
who are ex-Asian Paints – another testimony to the high caliber of work culture at
Asian Paints. The company’s history and ascent are covered in detail in our January
2016Coffee Can legends deep-dive report (click here). The family trees of the three
promoter families who hold, in total, 52.8% in the company are given below.
Exhibit 16: Vakil family tree - Shareholding (%) and responsibilities (where information was available)
Arvind Vakil
Abhay Vakil Amar Vakil

(2.97%) (1.36%)
Vivek Vakil (0.33%) Varun Vakil (0.23%)

Bhairavi Vakil Nehal Vakil (Imports Executive - Amrita Vakil Dipika Vakil (Manager - Project
(0.23%) (0.25%) Supply Chain) (0.27%) (0.21%) Sales)
Source: Ambit Capital research; Note: The family trees have been made based on the information available and may not be completely accurate.
Exhibit 17: Dani family tree - shareholding (%) and responsibilities (where information was available)
Surykant
Dani
Ashwin Dani (0.22%) & Wife - Ina

Dani (0.05%)
Hasit Dani (Age 43) (0.42%) (Non exec Malav Dani (Age 40) Jalaj Dani (Age 45) (0.17%)
Director in APNT from 2001-11; Presently, (0.34%) (MD of Hitech Plast (President - HR International &
MD of Gujarat Organics Ltd) Ltd.) Chemical)
Shubhlakshmi Ishwara Dani Smiiti Dani Mudit Dani Vita Dani

Dani (0.01%) (0.04%) (0.01%) (0.02%) (0.05%)
Source: Ambit Capital research

Strategy
Exhibit 18: Choksi family tree - shareholding (%) and responsibilities (where information was available)
Source: Ambit Capital research
Succession planning at Asian Paints: Asian Paints hired its first professionals as Asian Paints hired its first
far back as the late 1960s and early 1970s, soon after it become #1 and Champaklal professionals soon after it become
Choksey realized that scaling up operations would need professional help. #1
Accordingly, Choksey hired Biji Kurien, P M S Murty, and K B S Anand from the IIMs.
These professionals, under Choksey’s leadership, drove Asian Paints’ growth through
the 1980s and 1990s. However, there was a dispute among promoters in 1997 when
the Choksey faction sold its stake in Asian Paints to its competitor, ICI, and Atul
Choksey – then the Chairman and Managing Director of Asian Paints – left the
company. The remaining promoters successfully staved off ICI from taking a stake in
Asian Paints. Atul Choksey’s departure made no difference to Asian Paints fortunes
and till date, the company maintains its leadership. As Ashwin Dani recalled20 in
2007, "We made one tactical error. That everyone thought the company was revolving
around only one person. People thought that by and large that if one family is leaving,
it would affect the prosperity and performance of the company. Shareholders feared
that it could hurt them and the company. But we were very sure that the company was
run by a good team of professionals."
We believe the harmonious relationship between owners and managers is key to Harmonious relationship between
Asian Paints success. The owners allowed professionals to take control of middle and owners and managers is key to
senior management roles as early as 1969. Although many second generation Asian Paints success
members of the four promoter families were engaged in the business in the 1970s
and thereafter, they had been given strict instructions not to interfere with
professionals especially when the latter had been made responsible for a specific
function. To date, all six family members on the Board are at a non-executive status.
However, outside of the Board, members of the family play key roles within the
company, with the senior most being Jalaj Dani, President - HR, International and
Chemical.
In 2009, Asian Paints showed its commitment to rewarding professionals when – for
the first time – it elevated a professional (P M S Murty) to MD/CEO position. Murty
remained MD/CEO till FY12 and, when he retired, was replaced by another veteran,
K B S Anand. The culture of succession planning internally remains strong, as Anand
said in a 2015 interview21, “We have a method in place for evaluating key positions
that need succession planning and proposing to the board on a regular basis, who can
fit the bill." Anand’s tenure was from 1st April 2012 to 31st March 2015, and last year
this tenure was extended to 31st March 2018. Hence, while it is too early to guess
Anand’s successor, Asian Paints will, most likely, continue its tradition of choosing a
career veteran as the leader from within its ranks to lead the company in the future.
20
http://www.dnaindia.com/money/report-come-what-may-we-have-to-protect-our-turf-1117970
21
http://www.businesstoday.in/mindrush/mindrush-2015/kbs-anand-sunil-duggal-and-jayadev-galla-at-
mindrush-2015/story/227289.html

Strategy
Case Study 2: Marico Limited

Family Background: Marico is a rare example of a family member breaking away Rare example of a family member
from the larger family with a specific business and, over a period of time, building it breaking away from the larger
up with professional talent. Marico remains India’s largest edible and hair oil family and building the business
company and a brand built assiduously by Harsh Mariwala and his team of with professional talent
professionals. Bombay Oil Industries Limited (BOIL) belonged to the Mariwalas and
specialized in institutional (i.e. business-to-business) sales of coconut oil (Parachute)
and edible oil (Saffola). Mariwala shifted this business to a higher-margin model of
selling to consumers and built both brands through the 1970s. In the early 1990s,
Mariwala separated both businesses from the family, and called his company Marico.
Since those early days, Mariwala’s trust in professionals remains intact, as seen in
2014 when he relinquished the MD/CEO position to Saugata Gupta and became the
Chairman. Marico’s history is covered in detail in our February 2016 Coffee Can
legends deep-dive report (click here). The family tree of the Mariwalas and the family
separation chart in 1990 are given below.
Exhibit 19: Mariwala family tree
Kanji Mooraji- Vallabhdas (Vasanji) Mariwala

(Uncle- Nephew Team)
Charandas Mariwala (b. Jayasinh Mariwala (b. Hansraj Mariwala (b. Kishore Mariwala (b.
1921) 1933) 1932) 1935)
Ajay (b. Rajendra

Harsh (b. Sanjay (b. Madhav (b. (b. 1962)
1963)
1951) Joined 1960) Joined Mohan (b. 1960) Joined Shyam (b. Joined the Ravi (b.
Joined the
the business in business in 1967) the business in 1967) business 1966)
business
1971 1981 1986 in 1988
in 1988
Exhibit 20: Bombay Oil Industries’ division into 5 different businesses in 1990
Bombay Oil Industries Ltd.
Jayasinh Mariwala Kishore Mariwala

Charandas Mariwala Heads Kanji Mooraji Kanmoor Hansraj Mariwala
Chairman & MD of BOIL Chairman of EPRO Heads the Chemical division of
Foods Ltd. and Kancor Flavours Bombay Oil and Hindustan
and Chairman of Marico & Extracts Biotechnologies
Polyamides & Fibres
Madhav - Rajendra -
Harsh - Sanjay - Ajay - Shyam Chemical Ravi
Mohan EPRO
Marico Kancor Kanmoor Division
Succession planning at Marico: Leading by example, Harsh Mariwala is among the Marico’s Board composition reflects
most vocal proponents of a structured, well-thought-out process of succession Mariwala’s philosophy.
planning and the importance of employing professionals in a company. He used
professionals for building the consumer-facing brands of Parachute and Saffola in the
1970s and broke away from the family business in 1990 to ensure that Marico is
never perceived as a family business, but as a professionally-run FMCG company. He
has gone on record22 to state that Marico is not a ‘lala’ company (lala is a Hindi word
for businessman and a ‘lala company’ is a pejorative term used to describe a
22
http://articles.economictimes.indiatimes.com/2013-10-29/news/43495927_1_soap-opera-n-harsh-
mariwala-independent-director

Strategy
company run on the whims and fancies of its owner). Marico’s Board composition
reflects Mariwala’s philosophy. Of the 9 directors, 6 are independent, 2 belong to the
promoter family (Harsh and Rajen Mariwala), and Saugata Gupta as MD/CEO.
Devising a succession plan for the Board, Key Managerial Personnel, and senior
management is an explicit duty of the Corporate Governance Committee of the
Board of Directors. In 2015, Mariwala told us, “What we need to understand is that
the Board is a source of competitive advantage and not just there to meet statutory
requirements. At Marico we identify the competencies we need in the business and
accordingly build the Board.”
Mariwala’s children, Rishabh and Rishvi, joined Marico23 but quit within a few years. Harsh Mariwala’s children are not
Rishabh joined Marico in 2008 as operations manager and worked in the Kaya Skin involved with Marico
Clinic division. He quit in 2011 to set up a soap company. Rishvi joined Marico in
2007 in the brand-building team and quit in 2009 to pursue sociological research. At
Marico, Mariwala reorganized the business in 2013. Marico's domestic and
international businesses were merged to create one FMCG business. Saugata Gupta,
who until then headed the domestic Consumer Products Business (CPB), was elevated
as Chief Executive Officer for the entire FMCG business. Vijay Subramaniam, who
headed the International FMCG business, was appointed Kaya CEO after its
demerger. A year later, in 2014, Harsh Mariwala stepped down as Managing
Director, relinquishing the post to Saugata Gupta – a rare move among Indian
promoters most of whom struggle to contemplate ceding control to professional
management.
Marico’s succession planning and use of professionals on the board stand out as an
example of good corporate governance practices. These practices also go a long way
in building competitive advantages for the company.
23
http://www.business-standard.com/article/companies/mariwala-scions-building-careers-outside-marico-
114032900024_1.html

Strategy
The Bad – Prolonged family disputes during

generational transfers
Case Study 1: Apollo Tyres
Family Background: Raunaq Singh was the founder of Apollo Tyres. Born in 1922, Apollo Tyres stands out as an
Singh went from trading steel tubes to manufacturing them when he founded Bharat example of severe conflict between
Steel Tubes and expanded his businesses to include auto components, finance, etc. generations
He acquired Ruby Rubber Works, a Kochi-based rubber manufacturer, and
incorporated Apollo Tyres in 1972. However, due to labor problems and competition
from established players, the business struggled through the 1970s. Singh’s son
Onkar Singh Kanwar took over operations of the company in the early 1980s and
turned it around. However, this success also sparked off a dispute between Kanwar
and his father. Singh passed away in 2002, and while Kanwar had another dispute
with his brothers in 2007, he remains in command of Apollo Tyres. The company has
made two acquisitions (Dunlop’s Africa operations in 2006 and Netherlands-based
Vredestein in 2009) that went through and a third (Cooper Tyres in 2013) that was
aborted.
Exhibit 21: Raunaq Singh Family Tree
Raunaq Singh Raunaq Singh
Onkar Arvinder Narinder Surinder Satinder

Rani
Kanwar Pal Jeet Pal Pal
Raaja Neeraj
Shalini
Kanwar Kanwar
Source: 'Business Battles' by Shyamal Majumdar (2014), Ambit Capital research
Family disputes at Apollo Tyres: The dispute between Raunaq Singh and his son,
Onkar Singh Kanwar, in 1993 was a textbook case of a generation that flourished in
the old license-raj versus the new, competitive economy that resulted from the
liberalization of India’s economy in 1991. As the Economic Times reported24 on
Singh’s death in 2002, “Unfortunately, corporate power, for Singh, ended with the
onset of liberalisation. Given to the ways of easily obtaining licences and diverting cash
from one business to another, Singh found it difficult to grapple with the dynamics of
changing corporate equations in a more globalised world that banked on
professionalism, not patronage, in the way business was run." Singh accused Kanwar
of financial irregularities at Apollo Tyres and refused25 to sign the annual accounts of
FY92-93. Singh ultimately lost the battle and had to relinquish the MD position to his
son as he got elevated to chairman. As Majumdar writes, “Onkar Singh Kanwar,
Raunaq's eldest son had turned the entire board against him. The board decided to
make Onkar, the vice-chairman and managing director and reduced Raunaq Singh's
role in the company by making him a figurehead chairman." According to Majumdar,
Singh wanted to divide the spoils of Apollo Tyres between his four sons, while
“Kanwar did not want his brothers claiming a share of Apollo’s good fortunes which, he
felt, was entirely due to his own hard work.”
The division of Singh’s empire was
a cause for strife within his sons
24
http://articles.economictimes.indiatimes.com/2002-09-24/news/27344097_1_raunaq-singh-onkar-
singh-kanwar-apollo-tyres
25
http://indiatoday.intoday.in/story/md-of-apollo-tyres-raunaq-singh-and-son-onkar-singh-kanwar-feud-
over-the-group-flagship/1/302877.html

Strategy
Singh divided his empire as follows: Arvinder Pal got Apollo Tubes, Onkar Singh
Kanwar got Apollo Tyres, Surinder Pal got Bharat Gears, and Narinder Jeet got
Panshila Rubbers. Of these, only the businesses of Onkar Singh Kanwar and Surinder
Pal have done well.
As per its FY15 annual report, Kanwar is Chairman and Managing Director, his
younger son, Neeraj Kanwar, is Vice-Chairman and MD, and while his elder son,
Raaja Kanwar, is not on Apollo Tyres’ board, he is Vice-Chairman and MD of Apollo
International which handles the family’s other businesses such as distribution and
marketing of tyres, logistics, digital cinema, leather exports, etc. As per its FY15
annual report, Apollo’s Board consists of 11 directors, including 7 independent
directors. To its credit, Apollo has assembled a global management team to help
achieve its stated goal of US$6bn26 revenues by 2020. Members of this team (Martha
Desmond – Chief HR Officer, Marco Paracciani – Chief Marketing Officer, etc.) sit on
the Management Board, which includes both Onkar Singh and Neeraj Kanwar.
While these foreign professionals will play an instrumental role in Apollo Tyres, it is
evident that ultimate leadership, strategy, and operations of the company will remain
with the Kanwars. We included Apollo Tyres as a company at risk of sliding from
greatness, in our May 2016 thematic report (click here), “At the brink”.
Case Study 2: Ranbaxy

Family Background: Bhai Mohan Singh acquired Ranbaxy in 1952 from his cousins Differences between father and
Ranjit Singh and Gurbax Singh (hence ‘Ranbaxy’ – a fusion of the owners names). son over Dr. Parvinder Singh’s
Through the late 1960s, Singh found success in making drugs in India that were choice to allow professionals to run
based on those overseas (for example, Calmpose, an early success was based on Ranbaxy
Roche’s Valium). Singh’s eldest son, Dr. Parvinder Singh, joined him at Ranbaxy in
1967 and transformed Ranbaxy into a research-driven, manufacturer of generic
drugs. However, differences between father and son erupted in 1993 over Dr.
Parvinder Singh’s choice to allow professionals to run Ranbaxy. There were disputes
between Dr. Parvinder Singh and his brothers as well, and these continued through
the 1990s. Dr. Parvinder Singh’s sons sold their stake in Ranbaxy to Daiichi Sankyo in
2008 who eventually sold Ranbaxy to Sun Pharma in 2015.
Exhibit 22: Bhai Mohan Singh's Family Tree
Source: 'Business Battles' by Shyamal Majumdar (2014), Ambit Capital research
Role of professionals and division

of assets were key reasons in the
fight at Ranbaxy
26
http://economictimes.indiatimes.com/magazines/corporate-dossier/apollo-tyres-md-neeraj-kanwar-
plans-to-make-it-a-global-player/articleshow/47628069.cms

Strategy
Family disputes at Ranbaxy: Ranbaxy’s disputes went on through most of the

1990s. The fight between father (Bhai Mohan Singh) and son (Dr. Parvinder Singh)
was over the role of professionals. Dr. Parvinder Singh believed in the role of
professionals, while Bhai Mohan Singh preferred business to remain within family.
This, coupled with the family settlement of Bhai Mohan Singh’s assets between his
sons in 1989, caused a rift in the family. In 1993, Bhai Mohan Singh resigned from
the Board of the company that he had built. As Majumdar writes, "The message was
now loud and clear. On 6 February 1993, before a board meeting was to select
Parvinder as chairman and managing director, and make him chairman emeritus, Bhai
Mohan resigned. Father and son were not on talking terms after that day."
In 1999, just before he died, Dr. Singh elevated Davinder Singh Brar (a Ranbaxy
veteran) to MD/CEO of Ranbaxy, while keeping his own sons, Malvinder and
Shivinder, outside the Board – much to the displeasure of Bhai Mohan Singh. Added
to this was another battle between his sons over Bhai Mohan Singh’s will, which was
finally settled27 in 2006 although Manjit Singh continued to battle on. Thus, the fights
between father and son and between brothers went on for nearly 13 years (1993 to
2006).
Back at Ranbaxy, Brar’s term didn’t last long. The veteran made way for Malvinder Brar eventually had to make way
Singh, who joined Ranbaxy’s Board and took over as CEO in 2006. Hence, while Dr. for family
Parvinder Singh was known for trusting professionals, Brar had to eventually step
down in favour of family. Finally, Malvinder and Shivinder Singh sold28 their stake in
Ranbaxy to Daiichi Sankyo in 2008 for US$2.8bn. Even though Daiichi Sankyo made
him CEO for a five-year term, Singh resigned in 2009. While the departure was
abrupt, Ranbaxy was then also under the watch of the United States Food & Drug
Administration (US FDA), which had put a ban on the import of medicine produced at
Ranbaxy’s Paonta Sahib facility in Himachal Pradesh for falsification of data.
In 2014, Daiichi Sankyo sold its stake in Ranbaxy to Sun Pharma for US$4bn. The
sale came after Ranbaxy, under Daiichi, had agreed to pay US$500m to the US FDA
in 2013 to resolve a lawsuit and the federal charges that Ranbaxy sold improperly
manufactured drugs. Earlier this year, in May 2016, an arbitration court in Singapore
asked29 Malvinder and Shivinder to pay `26bn as damages for concealing facts from
Daiichi Sankyo when they sold their stake in Ranbaxy to the latter in 2008.
Once one of India’s most promising pharma companies, Ranbaxy was delisted from
the bourses in 2015 as the merger with Sun Pharma was completed.
27
http://articles.economictimes.indiatimes.com/2006-08-01/news/27464876_1_nimmi-singh-analjit-
singh-ranbaxy-family
28
http://www.livemint.com/Companies/ABxz5axWTnk7EmtdNF7GxN/Six-business-lessons-from-the-
DaiichiRanbaxy-deal-fiasco.html
29
http://www.livemint.com/Companies/D21WaP0ZtLJRJk5moFFtGM/Former-Ranbaxy-owners-fined-
`2600-crore-by-Singapore-court.html

Strategy
The Ugly – Family disputes that resulted in break-ups

Case Study 1: Reliance Industries Limited
Family Background: Dhirubhai Ambani started a yarn trading business in the late The demerger of Reliance
1950s, which eventually grew to be Reliance Industries (RIL). RIL’s IPO was in 1977 Industries was among India’s
and the company rapidly integrated backwards into petrochemicals through the largest corporate splits
1980s and 1990s. In 2000, RIL commissioned the Jamnagar petchem and refinery
complex, which was then the world’s largest. Beyond refining and oil & gas, Reliance
Industries spread its operations across electricity distribution (acquisition of BSES in
2002), telecom (launch of Reliance Infocomm in 2002), finance (Reliance Capital in
1986), etc. In 2005, Reliance Industries demerged its power generation and
distribution, financial services, and telecom companies into separate entities as a
settlement between Dhirubhai’s sons, Mukesh and Anil Ambani. Since then, both
brothers operate separate divisions, sharing the ‘Reliance’ name across businesses.
Exhibit 23: Ambani Family Tree
Source: 'Business Maharajas' by Gita Piramal (1996), Ambit Capital research
Exhibit 24: Snapshot of Reliance Industries (led by Mukesh Ambani)

FY16A FY16A
(` bn)
Market cap Revenues Profits
Reliance Industries 3,085 2,765 275
Exhibit 25: Snapshot of Anil Ambani's Companies

FY16A FY16A
(` bn)
Market cap Revenues Profits
Reliance Communications 117 215 7
Reliance Infra 133 167 14
Reliance Capital 95 98 14
Reliance Power 138 107 14

Strategy
Family dispute at Reliance Industries: Like many industrialists such as the Birlas of
that era, Dhirubhai Ambani benefited from the license-raj that kept out competition
and stifled manufacturing via licenses. Compared to the Tatas and Birlas, Ambani
was a new kid on the block when he started Reliance in the late 1950s. Unlike them,
however, Ambani differed in his track record of expanding his company. Not
surprisingly, he was also known for his access to politicians that helped him to get
permissions and licenses quickly. However, his vision of building an empire is also
unique among India’s industrialists. As Hamish McDonald wrote in his book, 'Ambani
and Sons', "Over the years, Dhirubhai developed close ties with politicians in many
parties. [..]. The links were not always based on money, however. Dhirubhai is widely
acknowledged to have been a masterful exponent of his own business visions, which
have generally been more far-sighted than those of almost anyone else among India's
business leaders." Dhirubhai’s ambitions were also passed on his sons, Mukesh and
Anil. Both of them joined Reliance in the late 1980s and, as McDonald notes, “…the
lean early years gave them a hungry ambition, unusual for the second generation of a
successful Indian business family.”
Dhirubhai Ambani passed away in 2002 without a will. As McDonald wrote, "The Dhirubhai Ambani passed away in
family's main asset, its 34 per cent of Reliance, was held in the thicket of investment 2002 without a will.
companies. Dhirubhai felt no need to leave a will, apparently confident that Anil would
agree to work under Mukesh's leadership.” By then, the rift between his sons was part
of the corporate grapevine and incidents like Anil’s absence at the launch of Reliance
Infocomm in December 2002 only added to speculation30 that something was amiss
between the brothers.
In 2004, the fight played out in public eye when Mukesh Ambani admitted31
“ownership issues”, a near-official acknowledgement of the rift. Majumdar notes,
"Skeletons tumbled out of the cupboard with the force of a tsunami. Neither brother
was willing to climb down from his stated position. Also, friends and colleagues were
busy spreading stories about the rival camp. Anil and his friends stubbornly opposed
everything that Mukesh suggested. Mukesh and his team rarely consulted Anil and
neither did they take him into confidence on critical decisions."
Finally, in 2005, a settlement between the two brothers was reached. Mukesh would ..and a settlement between the two
retain Reliance Industries, while Anil would get the power generation and distribution brothers was reached in 2005
(Reliance Energy), financial services (Reliance Capital), and telecom companies
(Reliance Infocomm that was later renamed Reliance Communications). Both brothers
would clash subsequently over the RIL-RNRL gas dispute, but this was settled by the
Supreme Court in favor of RIL in 2010.
Reliance Industries’ 13-member Board of Directors consists of 2 promoter directors
(Mukesh and his wife Nita), 4 executive directors, and 7 independent directors.
Mukesh’s children, Akash and Isha Ambani, were given32 seats on the boards of
directors of Reliance Jio and Reliance Retail, but are absent on the board of Reliance
Industries. Mukesh Ambani is 59 years old and has a long way to go before
appointing a successor.
In case of the Reliance-ADA Group, Anil Ambani, 57 years old, remains in charge
and his children are absent from the boards of his companies. His son, Jai Anmol,
reportedly33 joined Reliance Capital in 2014.
30
http://www.rediff.com/money/2003/jan/02dalal.htm
31
http://www.thehindu.com/2004/11/19/stories/2004111904711400.htm
32
http://www.forbes.com/sites/naazneenkarmali/2014/10/13/mukesh-ambanis-22-year-old-twins-get-
board-seats/#fa040e3ad5ea
33
http://www.business-standard.com/article/companies/gen-next-ambanis-get-board-seat-at-reliance-
114101100810_1.html

Strategy
Exhibit 26: RIL stock price before demerger Exhibit 27: RIL stock price after demerger
1,200 800
1,000 700
600
800
500
600 400
400 300
200
200
100
0 0
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Reliance Industries Ltd SENSEX Index Reliance Industries Ltd SENSEX Index
Source: Bloomberg, Ambit Capital research. Note: Prices have been rebased Source: Bloomberg, Ambit Capital research. Note: Prices have been rebased
to 100 as of 1st Jan 1996. to 100 as of 1st Jan 2006.
Exhibit 28: R-ADA Group stocks have underperformed the Sensex since Jan 2006
700
600
500
400
300
200
100
0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Reliance Comm. Reliance Infra Reliance Capital Reliance Power SENSEX index
Source: Bloomberg, Ambit Capital research. Note: Prices have been rebased to 100 as of 1st Jan 2006.
Exhibit 29: Reliance Group companies before and after merger

Reliance Industries (consolidated financials) FY05 FY06* FY07 FY08
Revenues 6,64,652 8,26,913 11,37,764 13,75,094
PAT 75,707 94,018 1,19,777 1,52,769
ROCE 18% 18% 18% 17%
Reliance Communications (consol financials)
Revenues - - 1,37,523 1,88,274
PAT - 75 28,244 40,245
ROCE DNA DNA 13% 14%
Reliance Infra (consol financials)
Revenues 41,521 39,558 69,092 81,340
PAT 4,679 6,421 8,132 9,316
ROCE 8% 9% 8% 7%
Reliance Power (consol financials)
Revenues - - 23 -
PAT (0) (1) 2 667
ROCE 0% 0% 1% 1%
Reliance Capital FY05 FY06* FY07 FY08
Income 5,435 9,663 21,578 47,240
PAT 1,162 5,771 7,030 10,091
ROE 8% 20% 15% 17%
Source: Company, Ambit Capital research. *de-merged financials

Strategy
Case Study 2: Bajaj Auto

Family background: Bajaj Auto and Bajaj Tempo (now known as Force Motors) Rahul Bajaj built Bajaj Auto into
started manufacturing scooters and auto-rickshaws in the late 1950s. Though Rahul one of India’s biggest automobile
Bajaj joined Bajaj Tempo in 1964, he eventually built Bajaj Auto into one of India’s companies
biggest automobile companies. By 1995, Bajaj Auto was the biggest company in the
Bajaj Family, where other large companies included Bajaj Electricals and Bajaj
Hindusthan, which were run by other family members. There were also family trusts
and holding companies. All of these were at the center of a dispute between Rahul
Bajaj and his brothers that was finally resolved in Dec 2008. However, prior to this, in
2007, Bajaj Auto itself was split between Rahul Bajaj’s sons, Rajiv and Sanjiv Bajaj.
Exhibit 30: Bajaj Group Family Tree
Source: 'Business Maharajas' by Gita Piramal (1996), Ambit Capital research
Exhibit 31: Snapshot of Bajaj Auto's demerged companies

FY16A FY16A
Market cap (` mn)
Revenues Profits
Bajaj Auto 7,75,156 2,22,528 35,625
Bajaj Finserv 3,30,619 94,464 27,745
Bajaj Holdings 1,71,709 4,698 3,416
Family disputes at Bajaj Auto: To its credit, Bajaj Auto has survived and thrived
through India’s post-Independence era, license-raj era and the post-1991, liberalized
economy. Led by Rahul Bajaj, the eldest among his brothers and the patriarch of the
family, it successfully made the transition from a scooter manufacturer to a
motorcycle manufacturer. Along with Reliance Industries, it was among India’s fastest
growing companies in the 1980s. However, the Bajaj family has seen its share of
disputes that threatened to break up the family. As the family expanded in
subsequent generations, fights broke out among brothers over who will control what.
In her book, 'Business Maharajas’, published in 1996, Gita Piramal wrote, "Will Rahul
Bajaj break away from the group? Can Rahul Bajaj keep the family together? Will
Madhur accept Rajiv and Sanjiv or will he feel threatened enough to ask for a split?
Will Rajiv give Madhur the respect he should? [..] Most of the time the Bajajs manage
to ignore the whispering around them."

Strategy
In 2001, Shishir Bajaj demanded34 a division of the family’s companies. A settlement

in 2005 failed, prompting a public fight between the Shishir Bajaj and Rahul Bajaj In 2001, Shishir Bajaj demanded a
factions. However, a split between Rajiv and Sanjiv Bajaj was also imminent. As in the division of the family’s companies
case of the Ambani brothers, this split was also not spoken about publicly till things
went beyond a point.
In March 2007, Kushagra Bajaj (Shishir Bajaj’s son) launched a public attack on Rahul
Bajaj, saying, “When Bajaj Hindusthan was given to us as part of the settlement, the
company was in a bad shape. Two things have happened now. First, the company has
turned around and will soon be the fifth-largest sugar company in the world. Second,
Rahul's sons Rajiv and Sanjiv cannot stand each other. And Rajiv isn't going to let go of
Bajaj Auto. Sanjiv needs to be given something sizeable and Rahul thinks that should
be Bajaj Hindusthan." As Majumdar writes in his book, "Kushagra had hit a raw nerve.
The brothers Rajiv and Sanjiv had not sparred in the open but it was common
knowledge that they were not close and their styles of functioning were very different."
Finally, in August 2007, Bajaj Auto demerged its auto and finance business. Rajiv Finally, in August 2007, Bajaj Auto
Bajaj took over the newly carved Bajaj Auto, while Sanjiv Bajaj headed Bajaj Finserv, demerged its auto and finance
which housed the financial services business of Bajaj Auto. In Dec 2008, the Bajaj business.
brothers reached a settlement whereby the Bajaj Group shareholding in Bajaj
Hindusthan and Bajaj Consumer Care went to the Shishir-Kushagra Bajaj (SKB)
Group. The promoter shareholdings of all other companies in the Bajaj Group,
including those held by the SKB Group, are now with the four brothers of the Bajaj
Group.
Today, Rajiv (49 years old) and Sanjiv (46 years old) Bajaj lead their respective
companies, while also having a Board seat in each other’s companies. Given their
age, there are no issues of succession planning. Bajaj Auto’s 16-member board is
dominated by the family, with 9 independent directors. Similarly, Bajaj Finserv’s
board has 9 members, out of which 5 are independent directors. Incidentally, 2
generations of Bajaj family sit on each other’s Boards, namely Rahul and Madhur
Bajaj, and Rajiv and Sanjiv Bajaj.
Exhibit 32: Snapshot of the demerged Bajaj Auto companies
FY16A FY16A
Market cap (` mn)
Revenues Profits
BJAUT IN Bajaj Auto 7,75,156 2,22,528 35,625
BJFIN IN Bajaj Finserv 3,30,619 94,464 27,745
BJHI IN Bajaj Holdings 1,71,709 4,698 3,416
34
http://www.livemint.com/Companies/Q1yt1hDIr9FrJM3lDkwMvM/How-the-Bajajs-split-and-made-up-
after-7-yrs.html

Strategy
Exhibit 33: Bajaj Auto stock price performance before Exhibit 34: Bajaj Auto stock price performance after
demerger demerger
600 1,000
900
500 800
400 700
600
300 500
400
200 300
100 200
100
0 0
May-98
Nov-98
May-99
Nov-99
May-00
Nov-00
May-01
Nov-01
May-02
Nov-02
May-03
Nov-03
May-04
Nov-04
May-05
Nov-05
May-06
Nov-06
May-07
Nov-07
May-08
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Bajaj Auto (pre-demerger) Bajaj Auto Ltd SENSEX Index
Source: Bloomberg, Ambit Capital research. Note: prices rebased to 100 as Source: Bloomberg, Ambit Capital research. Note: prices rebased to 100 as
of May 1998. of May 2008.
Exhibit 35: Bajaj Finserv stock price performance after Exhibit 36: Bajaj Holdings stock price performance after
demerger demerger
450 350
400 300
350
250
300
250 200
200 150
150
100
100
50 50
0 0
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Bajaj Finserv Ltd SENSEX Index Bajaj Holdings & Investment Ltd SENSEX Index
Source: Bloomberg, Ambit Capital research. Note: prices rebased to 100 as Source: Bloomberg, Ambit Capital research. Note: prices rebased to 100 as
of May 2008. of May 2008.
Exhibit 37: Bajaj Group companies financial performance before and after demerger
Bajaj Auto (Old, combined) FY05 FY06 FY07*
Revenues 61,964 81,881 1,03,134
PAT 7,309 10,204 11,004
ROCE 20% 23% 21%
Bajaj Auto (new, demerged) FY08 FY09 FY10
Revenues 86,631 84,460 1,15,432
PAT 8,019 6,422 16,773
ROCE 40% 30% 64%
Bajaj Finserv (new, demerged) FY08 FY09 FY10
Income 3,552 3,782 9,820
Net profit (329) 713 5,591
ROE 1% 4% 22%
Bajaj Holdings (new, demerged) FY08 FY09 FY10
Revenues 3,576 1,398 7,105
PAT 5,257 3,249 13,626
ROCE 9% 7% 28%
Source: Company, Ambit Capital research. *FY07 was the year till which the company reported financials before
demerger.

Strategy
Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 saurabhmukherjea@ambitcapital.com
Research Analysts
Name Industry Sectors Desk-Phone E-mail
Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 nitinbhasin@ambitcapital.com
Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 aadeshmehta@ambitcapital.com
Aakash Adukia Oil & Gas / Chemicals / Agri Inputs (022) 30433273 aakashadukia@ambitcapital.com
Abhishek Ranganathan, CFA Retail (022) 30433085 abhishekr@ambitcapital.com
Achint Bhagat, CFA Cement / Home Building (022) 30433178 achintbhagat@ambitcapital.com
Anuj Bansal Mid-caps (022) 30433122 anujbansal@ambitcapital.com
Ashvin Shetty, CFA Automobile (022) 30433285 ashvinshetty@ambitcapital.com
Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 bhargavbuddhadev@ambitcapital.com
Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 deepeshagarwal@ambitcapital.com
Dhiraj Mistry, CFA Consumer (022) 30433264 dhirajmistry@ambitcapital.com
Gaurav Khandelwal, CFA Automobile (022) 30433132 gauravkhandelwal@ambitcapital.com
Girisha Saraf Mid-caps / Small-caps (022) 30433211 girishasaraf@ambitcapital.com
Karan Khanna, CFA Strategy (022) 30433251 karankhanna@ambitcapital.com
Kushank Poddar Technology (022) 30433203 kushankpoddar@ambitcapital.com
Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 pankajagarwal@ambitcapital.com
Paresh Dave, CFA Healthcare (022) 30433212 pareshdave@ambitcapital.com
Parita Ashar, CFA Metals & Mining / Aviation (022) 30433223 paritaashar@ambitcapital.com
Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 prashantmittal@ambitcapital.com
Rahil Shah Banking / Financial Services (022) 30433217 rahilshah@ambitcapital.com
Rakshit Ranjan, CFA Consumer (022) 30433201 rakshitranjan@ambitcapital.com
Ravi Singh Banking / Financial Services (022) 30433181 ravisingh@ambitcapital.com
Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 riteshgupta@ambitcapital.com
Ritesh Vaidya, CFA Consumer (022) 30433246 riteshvaidya@ambitcapital.com
Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 ritikamankar@ambitcapital.com
Ritu Modi Automobile (022) 30433292 ritumodi@ambitcapital.com
Sagar Rastogi Technology (022) 30433291 sagarrastogi@ambitcapital.com
Sumit Shekhar Economy / Strategy (022) 30433229 sumitshekhar@ambitcapital.com
Utsav Mehta, CFA E&C / Industrials (022) 30433209 utsavmehta@ambitcapital.com
Vivekanand Subbaraman, CFA Media (022) 30433261 vivekanands@ambitcapital.com
Sales
Name Regions Desk-Phone E-mail
Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 sarojini@panmure.com
Dharmen Shah India / Asia (022) 30433289 dharmenshah@ambitcapital.com
Dipti Mehta India / USA (022) 30433053 diptimehta@ambitcapital.com
Hitakshi Mehra India (022) 30433204 hitakshimehra@ambitcapital.com
Krishnan V India / Asia (022) 30433295 krishnanv@ambitcapital.com
Nityam Shah, CFA USA / Europe (022) 30433259 nityamshah@ambitcapital.com
Parees Purohit, CFA UK / USA (022) 30433169 pareespurohit@ambitcapital.com
Praveena Pattabiraman India / Asia (022) 30433268 praveenapattabiraman@ambitcapital.com
Shaleen Silori India (022) 30433256 shaleensilori@ambitcapital.com
Singapore
Pramod Gubbi, CFA – Director Singapore +65 8606 6476 pramodgubbi@ambitpte.com
Shashank Abhisheik Singapore +65 6536 1935 shashankabhisheik@ambitpte.com
USA / Canada
Ravilochan Pola - CEO Americas +1(646) 361 3107 ravipola@ambitpte.com
Production
Sajid Merchant Production (022) 30433247 sajidmerchant@ambitcapital.com
Sharoz G Hussain Production (022) 30433183 sharozghussain@ambitcapital.com
Jestin George Editor (022) 30433272 jestingeorge@ambitcapital.com
Nikhil Pillai Database (022) 30433265 nikhilpillai@ambitcapital.com

Strategy
Wipro Ltd (WPRO IN, SELL) HCL Technologies Ltd (HCLT IN, BUY)
800 1,200
700 1,000
600
500 800
400 600
300 400
200
100 200
0 0
Apr-14
Apr-15
Apr-16
Apr-14
Apr-15
Apr-16
Jul-13
Oct-13
Jan-14
Jul-14
Oct-14
Jan-15
Jul-15
Oct-15
Jan-16
Jul-13
Oct-13
Jan-14
Jul-14
Oct-14
Jan-15
Jul-15
Oct-15
Jan-16
Wipro Ltd HCL Technologies Ltd
Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research
Hero Motocorp (HMCL IN, SELL) Dabur India Ltd (DABUR IN, SELL)
3,500 350
3,000 300
2,500 250
2,000 200
1,500 150
1,000 100
500 50
0 0
Jul-13
Jan-14
Apr-14
Jul-14
Jan-15
Apr-15
Jul-15
Jan-16
Apr-16
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-13
Oct-14
Oct-15
Hero MotoCorp Ltd Dabur India Ltd
Godrej Consumer Products Ltd (GCPL IN, SELL) Tech Mahindra Ltd (TECHM IN, BUY)
1,800 800
1,600 700
1,400 600
1,200 500
1,000
400
800
600 300
400 200
200 100
0 0
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Godrej Consumer Products Ltd Tech Mahindra Ltd

Strategy
Zee Entertainment (Z IN, SELL) Supreme Industries Ltd (SI IN, BUY)
500 1,200
400 1,000
800
300
600
200
400
100 200
0 0
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Apr-14
Apr-15
Apr-16
Jul-13
Oct-13
Jan-14
Jul-14
Oct-14
Jan-15
Jul-15
Oct-15
Jan-16
Zee Entertainment Enterprises Ltd SUPREME INDUSTRIES LTD
AIA Engineering Ltd (AIAE IN, UNDER REVIEW) VA Tech Wabag Ltd (VATW IN, BUY)
1,400 1,000
1,200
800
1,000
800 600
600 400
400
200
200
0 0
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
AIA ENGINEERING LTD VA TECH WABAG LTD
Mahindra & Mahindra Ltd (MM IN, SELL) Mayur Uniquoters Ltd (MUNI IN, NOT RATED)
1,600 600
1,400 500
1,200
1,000 400
800 300
600 200
400
200 100
0 0
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Mahindra & Mahindra Ltd MAYUR UNIQUOTERS LTD

Strategy
Explanation of Investment Rating

Investment Rating Expected return (over 12-month)
BUY >10%
SELL <10%
NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock
POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs
NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs
Disclaimer
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in pri nted form .
Addit ional information on reco mme nde d securit ies is available on request .
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STRATEGY

Succession planning by family owned businesses in India

Research Analyst: Consultant: Subject Matter Expert

Section 1: The success of family-owned businesses (FOBs)……………………. 4

Section 2: The challenges faced by FOBs…………………………………………12

Section 3: How to succeed at succession………………………………………… 16

Section 4: The Succession Checklist……………………………………………….18

Appendix 1: Lifecycle of an FOB, its problems, and solutions…………………22

Appendix 2: Case studies of FOBs and succession planning…………………. 32

July 18, 2016 Ambit Capital Pvt. Ltd. Page 2

Succession planning by family owned Succession planning - companies to

Section 1: The success of family-owned

FOBs are big everywhere

July 18, 2016 Ambit Capital Pvt. Ltd. Page 4

FOBs – the best of both worlds

July 18, 2016 Ambit Capital Pvt. Ltd. Page 5

Introducing the IFFI

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Source: Company, Ambit Capital research

July 18, 2016 Ambit Capital Pvt. Ltd. Page 7

Exhibit 3: IFFI’s EBITDA growth has also beaten BSE200 (ex-BFSI)

Source: Company, Ambit Capital research

Source: Company, Ambit Capital research

July 18, 2016 Ambit Capital Pvt. Ltd. Page 8

Exhibit 5: IFFI companies debt/equity ratios have largely remained stable

FOBs falter at ROCEs and ROEs

Source: Company, Ambit Capital research

Exhibit 7: Similarly, IFFI ROEs have also lagged the BSE200

Source: Company, Ambit Capital research

July 18, 2016 Ambit Capital Pvt. Ltd. Page 9

India – at a turning point for entrepreneurism

FOBs should outlive their founders

July 18, 2016 Ambit Capital Pvt. Ltd. Page 10

In section 2, we describe the inherent challenges in an FOB in general and the

July 18, 2016 Ambit Capital Pvt. Ltd. Page 11

Section 2: The challenges faced by FOBs

FOBs – more vulnerable to failure

July 18, 2016 Ambit Capital Pvt. Ltd. Page 12

Source: Business Maharajas by Gita Piramal (1996), Ambit Capital Research

July 18, 2016 Ambit Capital Pvt. Ltd. Page 13

providing businesses for children is the prerogative of the promoter. However, in

The challenges unique to Indian FOBs

July 18, 2016 Ambit Capital Pvt. Ltd. Page 14

December 2015 thematic, ‘M+R+T=Earnings recession in India’ (click here), India is

July 18, 2016 Ambit Capital Pvt. Ltd. Page 15

Section 3: How to succeed at succession

Succession planning models

July 18, 2016 Ambit Capital Pvt. Ltd. Page 16

Insights from case studies

July 18, 2016 Ambit Capital Pvt. Ltd. Page 17

Section 4: The Succession Checklist

Checklist for investors

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B: Background of the Next Generation

C: The role of professionals

July 18, 2016 Ambit Capital Pvt. Ltd. Page 19

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Prominent companies where succession beckons

Source: Company, Ambit Capital research

July 18, 2016 Ambit Capital Pvt. Ltd. Page 21

Appendix 1: Lifecycle of an FOB, its

July 18, 2016 Ambit Capital Pvt. Ltd. Page 22

July 18, 2016 Ambit Capital Pvt. Ltd. Page 23