‘Run the family like a business, run the business like a family’

From setting up a jute factory to building airports and now ‘adjacencies,’ it’s been an eventful four decades, reminisces GM Rao

He started his industrialist career in 1978 by setting up a factory that made jute threads. In the four decades since, he has overseen his group course through multiple and disparate businesses — brewery, yeast, sugar, bank and insurance, an IPL franchise, to name a few — and finally drop anchor in infrastructure, with significant presence in airports, roads and power.

At the end of it all, Grandhi Mallikarjuna Rao, the patriarch of the ₹11,000-crore GMR group, says he finds satisfaction in building “an institution for perpetuity”, to do which in one generation is “very difficult, but not impossible.”

In an interview to BusinessLine in New Delhi recently (in which he was assisted by his son, GBS Raju,) Rao spoke with obvious passion about the institution building. Asked where he would like to see his group, say, 10 years from now, he replies that he does not set great store by financial targets. “I don’t believe in saying (things like) we will grow ‘10 times in 10 years’ – for me, building an institution is important.”

The institution he has set up is family-run, governed by a ‘family constitution’ and assisted by a ‘Group Performance Advisory Council’, which has eminent names such as Ram Charan, V Sumantran, M Damodaran and Pradip Shah. “Run the family like a business, run the business like a family,” says Rao.

Rao indicated clearly that the airports business was the group’s most profitable. The group runs the airports of Delhi and Hyderabad and Cebu in the Philippines, and is building one in Goa. It had also built airports in Turkey, which it divested, and in Maldives, where it had to quit following a government order for which the group got $270 million through an arbitration award.

Today, Rao speaks of getting into adjacencies — airport retail (duty-free shops, food and beverages), cargo and businesses where “digitisation and artificial intelligence” can come into play at airports.

On ‘energy’ he practically rules out further investments in coal-based plants, unless electricity distribution is privatised and a bond market develops in India (with bank borrowing, a single-month default makes the loan a non-performing asset or NPA).

Rao feels that concession agreements in India are the best in the world, but the problem is in authorities not honouring agreements in spirit.

A classic example is that of GMR Chhattisgarh Energy, where, after the fuel supply agreement was signed for the 1,370 MW thermal power plant, coal companies (following a government directive) refused to supply coal until a long-term power purchase agreement was in place. (But nobody would sign a long-term PPA unless the fuel supply agreement or FSA was in place.)

Lenders have since converted ₹3,000 crore of debt into equity. (It is learnt that NLC India is interested in buying that stake.) The group is also waiting for gas to revive its 768 MW gas-fired plant at Rajahmundry.

Does he regret entering the energy sector? No, says Rao. In fact, ‘energy’ was the first step in the group’s entry into infrastructure. In the mid-1990s, when the group decided to shift approach from “opportunistic mode to strategic mode,” it set up the 200 MW Basin Bridge plant in Chennai. That plant, and another 200 MW barge-mounted plant anchored at Kakinada, have completed their PPA terms and are to be sold off.

While Rao does not see the group investing in coal plants, he is looking for opportunity to buy “stressed assets” — plants in financial difficulty that might be distress-sold. He feels the fortunes of thermal power plants will improve in a couple of years, when re-gasification facilities come up and availability of imported LNG improves, and the government shuts down 35,000-odd MW of vintage coal plants.

However, the group believes that its next investments in energy will be in renewables, driven by Tenaga Nasional Berhad of Malaysia, which has 30 per cent stake in GMR Energy, the holding company for energy. But even for the renewables push, the group will wait, as it expects “churning” to happen. Rao sees a parallel in the current stage of wind and solar sectors with what happened in coal, with a few State governments wanting to renegotiate signed-and-sealed power purchase agreements.

He believes that after the two debt-equity swaps in the Chhattisgarh and Rajahmundry thermal power project companies, and the anticipated pick-up in gas availability, the energy business will start doing well. While the group will continue its presence in roads, its darling is clearly airports.

Rao, 66, speaks more of building a durable group that will withstand the effects of globalisation and the group’s CSR activities, run by the GMR Varalakshmi Foundation.

An obvious tenet of his philosophy is, ‘no sentimental attachment to any business’ — he points out that the group had no qualms about exiting businesses. It sold stake in Vysya Bank, ING Vysya Life Insurance, GMR Sugar (to EID Parry), breweries business to Vijay Mallya, and disinvested in airport and road projects.

Looking back at the four decades, Rao recalls many ups and downs. One down, for example, was Andhra Pradesh Chief Minister NT Rama Rao bringing in prohibition soon after the group raised funds through an IPO for its brewery business. Yet, that was also a blessing because, when the opportunity to set up the Basin Bridge plant came, the group had money in its pocket.

There have been disappointments in coal and gas power plants, but Rao dismisses these as a part of life. He admits committing “some mistakes” and has just called an internal meeting to analyse those mistakes with a view to avoiding them in future. “I don’t believe in complaining,” signs off Rao.

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