Corporate Front [Strategy]: Will Max Capitalise on the Cellular Sell Out?

Only if the Rs 561 crore that is earned from the deal with the Hutchison Group is utilised judiciously.

On a sultry summer afternoon in Mumbai, a little after the clock struck one on April 23, 1998, corporate India's largest sale was sealed. On the fourth-floor conference room of law firm Amarchand Mangaldas Suresh Shroff & Co. at Prabha Devi, Ashwani Windlass, the joint managing director of the Rs 113-crore Max India (Max), penned his signature on the wire-transfer receipt for Rs 561 crore.

That hardly insignificant sum is the proceeds from the sale of the Rs 750-crore Max Group's 41 per cent stake in the country's largest cellular services provider, Hutchison Max Telecom, which operates in the Mumbai circle. The buyer, the Hong Kong-based $4.73-billion Hutchison Group, transferred the shares to Telecom Investments India, a 51:49 joint venture between the Rs 28-crore Kotak Mahindra Capital Co. and the Hutchison Group.

The ink on the receipt had barely dried when Puneet Chaddha, account relationship manager, Hongkong Bank, called his M.G. Road office in Mumbai to confirm the transfer of money into Max's account in Delhi. The next port of call was, naturally, the Max Group's corporate headquarters in Delhi's Lajpat Nagar, where vice-chairman Analjit Singh received the confirmation of the deal. The 43-year-old Singh refused to let an unseemly spat with his father and Max's chairman Bhai Mohan Singh -- over the composition of the flagship's board -- detract from the moment. As he later told BT: ''Today, it's the same office, the same tree, and the same desk, but I see it with different eyes. It's a new paradigm for Max.''

That it is. Flush with funds, Singh has chosen to play arbitrageur, moving in and out of businesses as opportunities present themselves. He stresses: ''We aren't wedded to any one business. Those who are attached to any one business are sure to miss out on new opportunities in other businesses. I will not be in the turnover game. Instead, I will shed this nice-guy image in favour of a business-guy image.'' Soon after the deal was made public, the Credit Rating & Investment Services Of India put Max's Fully-Convertible Debentures which are rated FAA, on its ''positive watch list.''

Singh has already got down to business with the proceeds. First, he invited JM Financial's Nimesh Kampani to help in the deployment of the huge, Rs 561-crore cache, as well as to initiate the financial restructuring of the group. Max has also hired management consultancy firm McKinsey & Co. to help it restructure the group's business portfolio. The company has a presence in businesses as diverse as bulk drugs, paging, marketing of semi-conductors, Biaxlly-Oriented Polypropylene (BOPP) films, v-sat operations, and plating chemicals.

Although Max still holds a 10 per cent stake in Hutchison Max, Singh has, for all practical purposes, bid adieu to the cellular services business. He is expected to sell off the rest of the stake at the earliest opportunity. For, he is aware that the investments needed for the telecom business are beyond his reach, and cites financial constraints behind his decision to exit from the prestigious Mumbai cellular circle. He says: ''We realised that we probably needed Rs 1,000 crore. We asked ourselves: 'Are we in a position to put in that kind of money?' The honest, zero-ego answer was, 'No'.'' However, Singh is expected to retain Max Telecom Ventures' paging services in Punjab. The venture, which has about 85,000 subscribers, is yet to break even.

That leaves him with just one major business in Max's portfolio: pharma. The group is the country's largest producer of Penicillin-G. Pharmaceuticals contributes 38.84 per cent to Max's turnover; the group also includes the Rs 94-crore Penicillin-G manufacturer, Hindustan Max GB. But Singh is unlikely to sell this traditional family business: he did work for the-then Bhai Mohan Singh-controlled Ranbaxy until 1993. In any case, Penicillin prices have dropped by as much as 50 per cent since the last quarter of 1996 -- from Rs 1,025 per billions of units (BOU) to Rs 500 per BOU in the first quarter of 1998 -- ruling out a lucrative sale of the business in the short term.

Depressed market conditions may also force Singh to postpone the sale of the BOPP film division (contribution to Max's turnover: 37.38 per cent). And it may be too early to sell Max Atotech, which makes plating chemicals business for printed circuit boards. The company started operations only a year ago, in May, 1997. Singh may, thus, start off by hiving unsynergistic and small businesses, such as PCB chemicals (0.83 per cent of turnover) and metallised plastic films (8.05 per cent), and even the Rs 79.80 crore electronics business (11 per cent), which markets semi-conductors for the $27.97-billion Motorola and the $27.27-billion Hyundai.

To drive this emerging change, Singh has decided to restructure the board of Max. It is in the process of doing this that he has come into conflict with his father, Bhai Mohan Singh. When Singh wanted the resignation of two directors -- the Myanmar-based A. Mazumdar and the US-based Indar Jit Rikhye -- the move was opposed by his father. In fact, the father-son skirmishes prompted the Industrial Finance Corporation of India to raise the issue, and allege misappropriation of funds, at the inter-financial institution meeting in mid-April, 1998, in Mumbai. Confirms a former institutional director on the Max board: ''They (Singh and Bhai Mohan Singh) have voiced minor differences of opinion on operational issues earlier. But there was a virtual stand-off over the restructuring of the Max board, with Bhai Mohan Singh opposing the move.''

While Bhai Mohan Singh did not speak to BT, his son puts forward his point of view: ''His (Bhai Mohan Singh's) view is that the board can't contribute to the working of a company. I strongly believe that life starts at the board. I want like-minded people who can bring in more ideas and adopt a strong advisory role with review functions.'' With the two directors in question offering to resign, Singh is expected to appoint Windlass and CFO Vivek Jetley as their replacements in the next board meeting.

About time too. For, Max has a lot on its plate: Singh is close to finalising two strategic investment deals in South East Asia. Says he: ''I want to give the best value to the investors' money.'' Indeed, Rs 561 crore does give Max access to a sea of opportunity. But, as Sanjay Kaul, 45, broker, Delhi Stock Exchange, warns: ''Just because Max has money doesn't necessarily mean it will be able to do well in future.'' While Singh has displayed his acumen in selling, his future success will depend on how much purchase for profits his buying provides.

The Max(imium) benefits deal

Why was the deal structured thus? Analjit Singh, CEO, Max India, decided to withdraw from the cellular fray in September, 1997, when Max Telecom Ventures -- the 50 per cent stakeholder in Hutchison Max Telecom -- was unable to cough up Rs 102 crore as its share of a Rs 200-crore investment in the Mumbai cellular operator. But the Hong Kong-based Hutchison Group, which controls a 49 per cent stake in Hutchison Max Telecom, faced a problem: dot regulations don't allow a foreign company to directly own a majority stake in the licence-holder. That's why the Hutchison Group tied up with Kotak Mahindra Capital to form a 49:51 joint venture, Telecom Investments India, which holds the 41 per cent equity bought from Max. And Singh can sell Max's leftover 10 per cent stake after December, 1998, when the three year lock-in period runs out.