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Bajaj Group ET 1st July

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  How Bajaj Group is scaling new heights after split   By Lijee Philip  | 01 July 2014, 12:03 PM IST  Newsletter  A A  Share on email inShare11 In June 2013, when Sanjiv Bajaj put in an application with India's banking regulator to transform his growing consumer-loan company into a bank, it created a mild flutter at brother Rajiv's auto  business. Sanjiv's finance company is one of the main provider of loans to customers who buy Rajiv's motorcycles, and the regulator is particular that Indian banks limit such inter-group transactions. It's partly why the Mahindra Group, even with its impeccable credentials and its interest in financial services, cried off. But Sanjiv didn't. Although he lost out in the first round of licences, Sanjiv remains keen on banking, and the brothers might still have to deal with the maths at some  point of time. At the Bajaj Group, a difference of opinion between family members on approach and strategy is alright, acceptable. How they choose to express it is another matter. Straight-talking father Rahul Bajaj and even more straight-talking son Rajiv can respectfully disagree on national TV, and make for great viewing. But equation between the two brothers was different. Even when there was no meeting of minds, neither Rajiv, 46, nor Sanjiv, 44, would voice it publicly. They never have. And, family insiders say, they never will. (Rajiv declined to participate in this story, while Sanjiv declined comment on questions about his brother.) After 2006, they also have less reason to. Eight years ago, when father Rahul carved out two distinct businesses from a monolith called Bajaj Auto, and handed operational control of one apiece to the brothers, he did so on the pretext of unlocking shareholder value. With that one corporate stroke, he also managed to quell the possibility of  familial discord harming businesses and reputation. Eight years on, the move has proven to be smart from multiple standpoints -- succession  planning, ambition management, business growth and shareholder wealth creation -- and makes a telling statement about family businesses: a division can be good. The sum total of the Bajaj parts shows a 70% growth in revenues and a seven-fold increase in net  profit. There's a five-fold increase in wealth creation, with the combined market worth nearing Rs 1,00,000 crore. The parts have together delivered a compounded annual shareholder return of 28.4%, against the 8.5% delivered by the BSE Sensex index (See graphic). Rajiv and Sanjiv have taken forward the businesses built by their father in their own ways. The kids are similar (to their father) in determination, commitment and ethical values, says Niraj Bajaj, an uncle to the brothers, and chairman and MD of Mukand. But they are also different from each other. Sanjiv and Rajiv remain united by blood, but divided by personality. They don't share the closest of professional relationships, but they reconcile to that truth well and let the other be. In a sense, they would kill for each other, says Niraj Bajaj. But taking help in business decisions, that would be a rarity. Yet, the Bajaj family keeps this complex set up simple. The two disparate  parts are thriving -- and they sum up well, as their 76-year-old father would have liked them to when, after a fair amount of consideration, he gave his assent to break up the family business. The Demerger  In 2006, Rahul recommended to the board of Bajaj Auto -- back then, the entity where the entire  business interests of the group were housed -- that the company begin the process of creating  parts from the whole. The main objective, says Rahul, was to unlock shareholder value. Many FIIs (foreign institutional investors) had been telling me that Bajaj Auto has a lot of cash/cash equivalents on its balance sheet, and this is putting pressure on its return on capital employed and return on net worth, he recounts. Although Rahul maintains the demerger was not done to tackle inheritance and succession issues, it addressed them implicitly -- and succinctly. Before the demerger, Rajiv was in charge of vehicle manufacturing, engineering, R&D and domestic marketing/sales, while Sanjiv looked at finance and vehicle exports. This separation of responsibilities was largely in line with their respective interests, and the subsequent carveup maintained those alignments. It also opened up new possibilities. The demerger also allowed them to attract best-in-class managers for each  business, which may not have happened if it was one combined conglomerate, says Manish Kejriwal, the son-inlaw of Rahul. Separating the businesses has worked and it perfectly matches their (the brothers') DNAs, says Anil Singhvi, founder and director of Institutional Investor Advisory Services, a proxy shareholder-advisory firm. This was one of the few demergers that has worked very well. It has  been equally good for the family (promoters) and minority shareholders. But there was a time  when the chairman was wavering and wanted to put the demerger on the backburner , according to Kejriwal. It took a bit of challenging the status quo with Rahul, by Kejriwal and others, to revive it, own it and see it through. Father and Sons  It was one of the smoother family handovers seen in India Inc. And part of the reason was the authoritative hand and the progressive mindset of Rahul, who took charge of Bajaj Auto after his father, Kamal Nayan Bajaj, passed away in 1972, and turned it into an iconic Indian two-wheeler company. When the time came, he could hand over the reins to his two sons. Some in the older generation don't transfer governance to the next generation till it's too late, feels Kejriwal, who is the managing partner at Kedaara Capital, a private equity fund that, among other things, helps family-owned businesses unlock value. Rahul Bajaj has the unique, and often under-appreciated, ability to let go, and to have passed the leadership baton to the next generation very early and at the right time. More importantly, in the balance between freedom and control, between stepping in and staying a bystander, Rahul has struck different equations with each of his two sons. They are different  personalities, says Niraj, of the two brothers. Sanjiv is soft-spoken, while Rajiv is sober and not easily excitable, he says. Their approach to the demerger process was quite different. According to Niraj, though Rajiv was fully aware of the demerger process, he was not too involved as temperamentally he is not interested in routine stuff . By comparison, Sanjiv was spearheading the demerger, along with Rahul and Kevin D'Sa, a senior executive who has been with the group since 1978 and who works with both brothers but primarily in Rajiv's company. They have different sets of friends: Rajiv has a close-knit group, while Sanjiv is more inclined to socialising. Sanjiv is the more extrovert of the two, spending a lot of time with outsiders and investors. He goes on roadshows, says D'Sa. While Sanjiv stays in the family house, with his father, in the factory premises at Akurdi, 25 km from Pune, Rajiv moved out a few years ago and stays in Pune city with his family. Because of that locational proximity, and also the nature of their relationship, Sanjiv seeks out his father more often than Rajiv does. My father and I share an excellent relationship and he is also my fondest critic, says Sanjiv. Rahul feels both brothers are managing their respective companies well. Further, Rahul adds, unless he wants to bring a particular issue to their attention, he gives them advice only when asked. Both are highly competent and, with the help of their outstanding management teams, are doing a great job, he says. I try not to interfere in their functioning, but they are accountable to their respective boards and the chairman. Rajiv: His Own Man  That chairman is Rahul himself and he has changed from the time he was running the show. In  those days, the joke among senior managers was that they needed the approval of Bajaj senior to even order a newspaper in the company. From being something of a terror, with an overpowering  personality and demanding nature, Rahul has mellowed. From being totally hands-on in the business, he has stepped back as chairman, but he is not totally hands-off either. He is an active chairman and has the last word on major policies of the Bajaj Group of companies, says Niraj. He can be tough, but he has a heart of gold. He calls a spade a spade. He has a sharp mind and encourages participative discussions. He is open to dissent and different points of view. Perhaps the most high-profile, and public, instance of dissent came when Rajiv took the call in 2009 for Bajaj Auto to exit the scooters business -- the very two-wheeler segment on which his father built the company -- and focus on motorcycles. RL Ravichandran, who was then a senior  business leader at Bajaj Auto working closely with Rajiv, 'Hamara Bajaj' campaign with the father and also later with Rajiv. Some see Rajiv's stubbornness as a weakness. Rajiv's firmness in not seeking advice (not working with as many consultants as other auto majors) is perhaps not helping Bajaj Auto grow, feels Mahantesh Sabarad, deputy head (research), institutional equity, SBICAP Securities. Rajiv was very particular about protecting and growing Bajaj's market share, and would discredit any analysis that doubted it. Now, with Honda pulling away in market share, he has retreated into a shell. According to Ravichandran, Rajiv is well-versed in all aspects of manufacturing, product development, low-cost innovation; he is focused on profitability and productivity; and while he is optimistic, he is cautious on investments. He is very, very sharp in business analytics, and a smart controller of the game, he says. Adds Harsh Goenka, chairman of the RPG Group and who knows the family well: Rajiv is one of the finest managers around and an institutional  builder. Sanjiv: From The Shadows  Those are the two men who precede Sanjiv -- the lesser known of the two siblings, in charge of the lesser-known Bajaj business. He (Sanjiv) is caught between the towering personality of Rahul and a hands-on, no-nonsense, practical, precise and sharp Rajiv, says Ravichandran. Sanjiv is very selective and diplomatic in his expressions. Yet, being the youngest of the family, Sanjiv enjoys a soft corner with both Rajiv and Rahul. Since the demerger, Sanjiv has assembled a solid financial services business, spanning consumer loans, insurance and wealth management. The next leap, as he sees it, is banking. The banking license was very important for us but not urgent, says Sanjiv. When the next set of regulations come about, we will be in a better position to again evaluate the licence. It's a long way to come for an engineer and Harvard MBA graduate who cut his teeth in manufacturing -- first in Tata Motors and then in Bajaj Auto. Bajaj Finserv is the holding

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