How Gautam Thapar's $4 bn empire went bust

Business tycoon Gautam Thapar’s Avantha Group topped the $4 billion revenue mark during 2007-08. Its two flagship companies, BILT and Crompton Greaves, had a combined market capitalisation of around $3.7 billion as of March, 2008.

Cut to 2019, the two firms’ combined market capitalisation was down to mere $0.13 billion, excluding Crompton Greaves Consumers, which the group exited in 2015.

Industrialist Thapar, who laid the foundations of the group, is clutching at straws. Early May this year, Thapar lost control of CG Power and Industrial Solutions (demerged from erstwhile consolidated Crompton Greaves) when its lender YES Bank invoked the pledge on his shares in the company, resulting in his exit as a shareholder.

In 2015, Thapar had already sold his entire shareholding in Crompton Greaves Consumer (the other hived off unit of Cromptom Greaves), by selling it off to Advent International and Temasek.

Even in BILT, one of the oldest businesses that Thapar nurtured from the very beginning, promoter shareholding dropped to a little over 25.05 per cent as of June, 2019, from 49.25 per cent in the same quarter in 2012.

More than 99 per cent of the promoter holding is already pledged with banks, and the lenders took management control of the company in 2017 as part of a strategic debt restructuring.

What caused this downfall?

The beginning of Avantha Group

The New Delhi-based Avantha Group had its roots in the Thapar Group, an iconic Delhi-based business conglomerate founded in 1919 by Karam Chand Thapar. Gautam Thapar belongs to the third generation of the family.

Thapar completed his schooling from The Doon School and went on to pursue a degree in chemical engineering at Pratt Institute in the US. After finishing his engineering degree, Thapar struggled to find a suitable job in the US.

Joining the family business was not an option, as the business was run mostly by his uncle Lalit Mohan Thapar. KC and LM were not on speaking terms. He eventually returned to India in 1980 after a surprise call from his uncle, asking him to join the family business.

Thapar was asked to take charge of the falling Andhra Pradesh Rayons (APR), where he started working as a factory assistant. Soon, he got an additional assignment to nurture the chemicals division of Ballarpur Industries, the group’s new export-oriented paper and pulp manufacturing business. It was going through losses due to labour, water and power issues.

To everyone’s surprise, Gautam turned around the business and showed profits within a year. He killed the company’s expansion plans, sold off a few assets and dealt with the labour problem firmly. Gautam caught Lalit Mohan’s attention, and started rising rapidly through the ranks.

In 1999, the Thapar family business assets went through restructuring and they were divided among the four sons of Karam Chand Thapar.

Thapar Group: Division of businesses

Man Mohan Thapar and his family got JCT, JCT Mills and JCT electronics.

Brij Mohan Thapar got Crompton Greaves, BILT Chemicals and Bharat Starch. Other than that, Greaves Cotton, Premium Transmission Limited and English Indian Clays went to Gautam’s younger brother Karan Thapar.

Inder Mohan Thapar’s son Vikram and grandchildren Varun & Ayesha were given KCT Coal Sales, ICPL, Water Base and Tiger Bay restaurant chain.

Lalit Mohan Thapar got BILT. Since he was a bachelor, he named Gautam Thapar as his successor.

After the division of the group business, Gautam Thapar started functioning autonomously to grow his share of the business. By now, he was also handling LM Thapar’s business, and consolidating all the units under his leadership. He also bought out his brother Karan Thapar’s holding in Crompton Greaves by the end of FY2005-06.

In 2007, after the demise of LM Thapar, he became the rightful owner of his part of the business as well, and consolidated all his inheritance under one banner: Avantha Group. It had exposure to sectors such as paper, pulp, power, industrial solutions, consumer electricals, food processing, chemicals, farm forestry and information technology-enabled service (ITeS), among others.

The two flagship companies of the diversified conglomerate, Ballarpur Industries (BILT) and Crompton Greaves, were over $1 billion companies each. Crompton Greaves clocked total revenue of Rs 6,900 crore during 2007-08, while BILT earned consolidated revenues of Rs 2,849 crore, delivering combined revenue of $3.5 billion.

A decade later, the tables turned on Avantha.

What went wrong?

Expensive global pursuits: After consolidating his companies under one umbrella, Avantha Group became one of India's largest conglomerates. In 2010, at the age of 49, Thapar was ranked #28 in the Forbes’ List of India’s richest businessmen. Around that time, Thapar had begun aggressive expansion overseas. Between 2005 and 2012, Crompton Greaves had made 10 overseas acquisitions.

BILT also made an ambitious acquisition of Sabah Forest Industries, Malaysia's largest pulp and paper mill, for $261 million in 2006. However, it failed to scale up its Malaysia operations, as the cost of importing from that plant to India became higher than buying it locally, making the acquisition unviable.

Most of these acquisitions were funded through debt and none of the companies were able to fully integrate these acquisitions into ongoing businesses. The combined borrowing of Crompton Greaves had topped Rs 7,500 crore as on March, 2014.

Power failure: In 2008, Thapar announced his entry into power generation, and committed to invest at least Rs 5,000 crore ($1.3 billion) to build two power plants in Madhya Pradesh and Chhattisgarh with capacities to produce 600mw each. Thapar consolidated the group’s independent power projects under Avantha Power and Infrastructure and planned to combine his electricity distribution and generation businesses to double the group’s consolidated revenues to around $10 billion in five years. It became Thapar’s pet project.

However, the Avantha group’s foray into the capital-intensive power business didn’t see success and it further added to the debt burden. The group kept on pumping money into the power ventures even when it was fast losing its ability to service existing debt.

Since, its lenders sold the 600MW thermal power plant in Chhattisgarh under Korba West Power to Adani Group. The other thermal power plant in Madhya Pradesh, Jhabua Power, with 600MW operational capacity and additional 660MW capacity under implementation, has also been put on the block by the lenders.

Getting rid of the cash cow: In 2015, Thapar put Crompton Greaves up for sale in order to cut debt. However, he didn’t find any suitor. Thapar then decided to hive off Crompton Greaves’ consumer electricals business into a separate entity, CG Consumer Electricals, in order to find separate buyers for the consumer electricals and power and industrial solutions businesses.

Soon he found a buyer for the consumer electricals business and sold his entire 34.37 per cent stake for Rs 2,000 crore to private equity players Advent International and Temasek.

The consumer electrical business was contributing more than one-fifth of Crompton Greaves’ combined revenue. With the industrial segment bleeding, the consumer business was the cash cow supporting the B2B businesses.

No funds came into the company from the deal, as Thapar cashed out his stake, leaving Crompton Greaves (CG Power and Industrial Solutions) struggling with growing debt and no cash flow.

Crompton Greaves Consumer Electricals, currently commands a market capitalisation of Rs 15,000 crore, having almost doubled its value since the demerger. The power and industrial solutions business has lost 80 per cent of market capitalisation in the same period.

Instability in top management: Avantha Group was always known for having a stable top management. Sudhir Trehan was Managing Director for Crompton Greaves for more than a decade until he retired in April 2011. Similarly, Rajeev Ranjan Vederah was at the helm of BILT as Managing Director for eight years and later became non-executive vice-chairman post retirement.

Trehan is credited with making Crompton Greaves a truly global company. It was under his leadership that Crompton Greaves made those global acquisitions. After his retirement, the company failed to integrate those acquisitions.

Trehan was succeeded by Laurent Demortier in 2011, and then replaced by KN Neelkant in 2016. Neelkant was said to be Thapar’s blue-eyed boy, handling his favourite baby - the power generation segment as CEO of Avantha Power and Infrastructure before taking charge of Crompton Greaves.

Various employees and ex-employees at Crompton Greaves that ETMarkets.com spoke with said they were shocked by this sudden change in top management. “The new bosses were not able to match the vision that Trehan had, and that was the reason the acquired global businesses failed,” one of the ex-employee of Crompton Greaves told ETMarkets.com.

Gautam Thapar was recently ousted from his position as chairman of CG Power and Industrial Solutions by the company’s board after a probe revealed financial irregularities and corporate governance issues, casting doubts on the group’s survival.