With Gautam taking over as CEO even as Vikram shifts to Calcutta, LMT has, finally, decided the Thapar succession

By Rajeev Dubey & Rakhi Mazumdar

Selecting your successor from among your sons is not nearly as tough as nominating your inheritor from among your nephews. Ask the quickwitted Lalit Mohan Thapar (LMT), the 68-year-old Chairman of Ballarpur Industries Ltd (BILT), who took 4 years to make up his mind. Thapar or Thapar? Nephew or Nephew? Vikram or Gautam?

What made it impossible for LMT was the fact that he was close to Vikram Thapar, 50-the son of LMT's eldest brother, Inder Mohan-while Gautam Thapar, 38-B.M. Thapar's son-impressed him. Eventually, in a quiet boardroom decision, on April 16, 1999, LMT appointed Gautam the managing director of the group's flagship, BILT, while his elder brother, Karan, 40, will continue to oversee English Indian Clays and Bharat Starch. The Thapar succession travails were over.

Where did that leave Vikram, whose claims to head the group were stronger? After all, LMT's father, the late Karam Chand Thapar, had left a will in 1962, according to which Vikram were to become the group's chairman by October 22, 1995. But LMT, who was supposed to step down when he turned 65 in 1995, refused to play his part as per his father's script. First, he wouldn't allow Vikram to become the chairman of the group's holding company, Karam Chand Thapar & Bros (KCT), until November, 1998. Then, he retained managerial control of BILT's paper division, which Vikram could hardly refuse him.

Quietly, forced by circumstances and lured by compromise, Vikram stepped out of the reckoning himself early this year. Coincidentally, the ill-health of his 78-year-old pater, Inder Mohan Thapar, has forced Vikram to shift base to Calcutta to take charge of Karam Chand Thapar & Bros (Coal Sales), KCT's cash-rich subsidiary from the era when the Thapars controlled coal-mining and distribution in this country. Insists Gautam, 38: ''Vikram will focus on his father's business. He is not involved with BILT any more. I am the de jure managing director now.''

But Vikram has extracted a pound of flesh by getting LMT to agree that either the Rs 718.92-crore Greaves or the Rs 1,639.84-crore Crompton Greaves would also be part of his Thapar (East) Group. While that deal is yet to be dotted, Vikram, apparently, prefers Greaves. For one, Greaves owns a 28.48 per cent stake-27.41 per cent directly, and 0.87 per cent through a subsidiary, Carnation Investments-in Crompton Greaves. For another, it is a more profitable company: Greaves' net profits rose by 38.17 per cent to Rs 54.30 crore in 1997-98 despite a 11.31 per cent fall in sales. ''Everything will be worked out. A controlling stake in Greaves will, effectively, lead to control of Crompton Greaves,'' says Vikram enigmatically.

Clearly, the stage has been set for a more stable regime at BILT, where the glorious uncertainties about the line of control have taken their toll. Over the last 10 years, the 2 joint managing directors have been jostling for the top job, and, although the tussle may never have been spilt out bitterly, BILT's bottomline and morale did suffer. In fact, given the top post, Gautam has immediately buckled down to strategising BILT back to the top. One of his first (surprise) decisions: BILT will focus only on writing, printing, and industrial papers, which constitute 79 per cent of that market.

While their strategies and styles will decide the fate of the 3 cousins, ironically, that is unlikely to impact any company in the short run-but BILT. That's because Vikram will, probably, let things stay the way they are at Greaves. After all, he has his hands full with KCT & Bros (Coal Sales) and its numerous divisions. ''Despite net profits of Rs 112 crore on sales of Rs 1,500 crore in 1998-99, KCT's operations need to be restructured as it is present in several unrelated areas,'' admits Vikram. He's right.

For instance, Punjab Business, which used to collect cotton-rags for use in paper-making, has become defunct in a synthetics world. But it continues to exist. Besides, Vikram must arrange for Rs 500 crore to finance KCT's 2 joint ventures in mining, which will, essentially, supply 3-5 million tonnes of coal a year to thermal power plants. In fact, his demand to control either of the group's 2 professionally-managed companies was based on the premise that he wouldn't be able to devote time to them.

Agrees Shekhar Datta, 61, Chairman, Piaggio Greaves Venture, Greaves' CEO for the last 11 years: ''The approach of the cousins towards Greaves has been professional. I would give them the benefit of the doubt that, like LMT and KCT, they will not interfere in the management of the company.'' Also, add on the fact that Vikram is a quiet, poised, laid-back CEO; he loves fishing in the Andamans and never misses a chance to gobble paani-puri from his favourite hawker at Calcutta's Victoria Memorial.

In comparison, Gautam is aggressive, pushy, and flamboyant-traits he will need to resurrect a one-time leader. Explains a manager who worked for nearly 6 years with the group: ''Major decisions got bogged down because of the constant state of flux. That was viewed as unhealthy by all us managers.'' Agrees Vikram: ''The bane of the group was that we shared all the disadvantages of being together.'' This, obviously, impacted BILT's financials as its net profits tumbled from Rs 107.27 crore in 1995-96 to Rs 3.20 crore in the 18-month period ended September 30, 1998.

That was an operational loss, but the Rs 25.61 crore of Other Income and Rs 22.74 crore of Extraordinary Income that came from the sale of BILT's chemicals division to BILT Chemicals pushed the company into the grey. Agrees A. Kandasamy, 29, Analyst, CRISIL: ''Other Income is the reason for BILT's positive bottomline.'' The only consolation: the last 3 years were bad for all the paper-manufacturers in the country. Agrees Harsh Pati Singhania, 37, the CEO of arch-rival JK Corp: ''The last 2 years have been the worst for this industry. And the larger players, with their huge capacities, were the worst-hit.'' BILT had other problems too.

For instance, Vikram's ambitious plan to invest Rs 1,200 crore to set up a grassroot unit to manufacture 160,000 tonnes per annum (tpa) of industrial paper at Choudwar (Orissa) was bitterly opposed by Gautam, then the finance head. Instead, the latter wanted the company to put its money into its non-paper businesses-like expanding capacities in bromines and bromides from 250 tpa to 2,810 tpa, and adding a 10,000 tpa-facility to manufacture di-calcium phosphate with an investment of Rs 87 crore in 1997-98. Says he: ''Choudwar is not a site where we want to waste our efforts-or money.''

At the same time, Gautam has realised the folly of stalling the expansion of BILT's paper business, and pushing its non-paper forays instead. After all, each of his diversifications turned out to be mini-disasters. The bricks unit, instead of 12 months and Rs 30 crore, took 36 month and Rs 135 crore; the edible oils business proved to be unprofitable, and had to be sold off in 1996; and Gautam's pet nylon 6,6 project with Du Pont remains a non-starter to the day.

Points out R.L. Bhatia, 37, Executive Director, Centre for Change Management: ''Businesses are getting so competitive and specialised that if the Thapars don't restructure their operations, they could be devoured.'' Already, LMT has sold off BILT's glass, edible oils, leather, and non-ferrous ingots and castings divisions. Now, the Thapars are actively scouting for a buyer for the only remaining non-paper business in the company: the Rs 2.78-crore autoclaved aerated concrete (AAC) bricks division. Admits Gautam: ''We plan to take it out of BILT. The offer to sell is still on.'' Also on the block: BILT's 63.11 per cent stake in the Kuala Lumpur-based glass containers company, JG Malaysia, and the 13.75 per cent stake in the Bangkok-based Phoenix Pulp & Paper, which is enmeshed in legal wrangles.

Meanwhile, Gautam has come up with a novel plan to expand BILT's paper-making capacity from 262,000 tpa to 485,000 tpa in 4 years: by ramping up the speed of existing machines through the process technically termed running re-build. Of the Rs 170 crore of investment this will need-Vikram wanted to spend Rs 1,200 crore-Rs 70 crore will be pumped in to double the capacities of the 2 units making printing and writing paper-Ballarpur (capacity: 99,000 tpa; Maharashtra) and Shree Gopal (70,950 tpa; Haryana)-and Rs 100 crore will be invested to double the 42,500-tpa industrial kraft paper capacity at Ashti (Maharashtra).

Agrees M.P. Jatia, 68, Managing Director, Pudumjee Pulp & Paper: ''In the current market, ramping up capacity may be the most cost-effective option.'' While BILT is technologically self-sufficient, and can do this on its own, it has been looking for a technical tie-up or a joint venture with a foreign major for the Ashti unit for the past 18 months. That is to help the unit manufacture speciality industrial papers-like the test-liner paper used in corrugated boxes-where the margins are as high as 30 per cent.

Could this mean that all the Thapars have agreed to a three-way split of the group? Logically, the next step would be to disentangle the complex holding-structures to let the 3 cousins chart their own growth-paths although it could take time. For instance, BILT has a stake of 0.57 per cent in KCT & Bros, 34.02 per cent in KCT & Bros (Coal Sales), and 11.87 per cent in Greaves. In addition, BILT's subsidiary, Janpath Investments, holds 0.05, 7.79, and 5.98 per cent stakes, respectively, in those 3 companies. Obviously, Gautam will demand a premium if he has to give up these stakes.

As for LMT-who continues to have a say in Janpath Investments, a holding company with stakes in apr Ltd (17.84 per cent), Greaves (5.98 per cent), English Indian Clays (18.67 per cent), and KCT & Bros (0.05 per cent)-he hasn't decided to hang up his spurs-yet. So, while Gautam will manage BILT, he will do so in consultation with his chairman-uncle. ''Only after talking to him will I execute key changes,'' explains Gautam.

While that may be the only way LMT can ensure that his succession plan works, this time, he will not interfere with the division of the managerial spoils among his nephews. That will send the right signals to the managers in the group as well as investors. In fact, the bourses are applauding, with the BILT scrip shooting up from Rs 19.25 on April 19, 1999, to Rs 38.90 on June 7, 1999, after having touched a 52-week high of Rs 42.55 on May 19, 1999. Says Vijay Bhushan, 40, the well-known stockbroker: ''BILT has witnessed a correction since its base-price has been Rs 50. But its price could move up in future if the company performs.''

Gautam too realises the need to woo back investors. ''My biggest challenge is to rebuild our credibility among our shareholders.'' That's a task, especially in an industry, that has been ravaged by the recession. Still, with the family trifurcation out of the way, BILT, under another Thapar, may just be able to print profits from paper in the 2000s as it has for the better part of the 20th Century.

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