Chennai: Chennai-based conglomerate Siva Group is the creation of non-resident Indian entrepreneur C. Sivasankaran, who grabbed headlines in the 1980s with his low-cost Sterling computers. The $3 billion (Rs14,400 crore) group, known for buying companies at a low cost and selling them at a higher price tag, has interests in realty, telecom, shipping, energy and agricultural exports.
In an interview, Siva Group veteran and chief executive officer V. Srinivasan talks about the group’s varied interests, including its next big thing—energy—and offers a glimpse into plans for the foods business. Edited excerpts:
How does the Siva Group identify new business areas? What is your investment philosophy?
The philosophy we follow is that input is money and output is money. As long as there is a value addition process, or a black box, between the two and output is more than the input, we are interested in any business. The key criteria for us to enter any business is that it should offer a minimum compounded average growth rate (CAGR) of 30%. From that point of view, we are business-agnostic. We never get attached to any business. We never set up any business. We believe in running a business successfully and exiting it. We may hold on to it for as long as we need but at some point of time we aim to exit because that’s when we are challenging ourselves. We are serious about issues like corporate governance. For example, Mr Sivasankaran owns a corporate jet. When he flies, he can very well debit it to the company. He doesn’t do it. He spends out of his own pocket. That is the kind of discipline we follow and it is required. If you want to add value in such a business, you must expect your payment day to be on the date of exit. You have to wait for it. It may be four, five or seven years.
Success strategy: V. Srinivasan says Siva Group’s key criteria for entering any business is that it should offer a minimum compounded average growth rate of 30%. From that point of view, the group is business-agnostic.
The telecom sector has definitely been a favourite for the group. How has the going been in that business?
In telecom we have three interests. In Tata Teleservices Ltd, we are merely a financial investor. We don’t have a board seat. That investment has been doing well and after Japanese telecom operator NTT Docomo became a shareholder recently our stake stands at nearly 6%. Then we also build telecom towers through our company SPEL. And finally we are into a joint venture to provide GSM (global system for mobile) services in states like Bihar, Orissa, Assam and areas in the North-East via STel. Before the end of the year, Batelco’s share will be up to 49% and Siva Ventures will hold a 51% stake. (STel is a Chennai-based telecom firm acquired by Siva Group. Batelco is a Bahrain-based telecom operator. Siva Ventures is Siva Group’s holding company.)
We are looking for the business to be positive on an Ebitda (earnings before interest, taxes, depreciation and amortization, or operational cash flow) basis in three years. The opportunity for organic growth is higher in category C towns because mobile telephony penetration is low. Then we could look at 3G and being a MVNO—mobile virtual network operator. MVNO is where you do not own the spectrum but trade on someone else’s spectrum.
Is energy the next big thing?
In India, there is a major supply-demand gap for energy. So energy in any form— coal, nuclear—has plenty of opportunities.
Renewable or green energy is another area that interests us. We acquired the Finnish company WinWinD in 2006 and have started producing 1MW turbines at our factory near Chennai. In about two years time, we will be manufacturing and exporting 3MW turbines as well. We should be able to cross sales of Rs1,200 crore in 2010.
Wind power is a much better candidate than solar, where the costs are still high as is the rate of technological change.
Our talks with Infrastructure Leasing and Financial Services Ltd to buy a 26% stake in a 4,000MW power plant at Cuddalore in Tamil Nadu should be wrapped up by the end of the year. We see some synergies with our interests in power and our shipping business. A 4,000MW power plant requires 12 million tonnes of coal to be imported, which translates into several shiploads of cargo from Jakarta in Indonesia to Chennai.
How rough have the waters been for the shipping business?
We played our game carefully in this business. When... rates (for carrying cargo) went up to $85,000 a ship following increased demand from China, we continued to charge our customers $30,000 or $25,000 rates for delivery and tapped customers who would stay with us for a three-year period.
We are looking at buying a few medium-sized ships that could cost about $30-40 million each. Ship prices are down by 50% as stockyards of shipbuilders are full following several order cancellations.
It is the best time to order ships from Japanese and Korean shipyards.
Another sector that you have interest in, realty, saw a steep slide as well.
In India, real estate has always been at a premium, especially in cities. And that is why we consider it a good area to invest in. We have a long-term view on it and are merely investing in it and not developing properties ourselves. If you invest in a property in India and stick with it for about 15 years, the returns will be anywhere north of 25-30%. In the US realty sector, a 6% CAGR is considered high, in India nobody will touch it.
Any plans to grow your agriculture business?
Sterling Agro will log Rs60 crore in sales this year. For now it is only into exports of products such as processed gherkins. But there is potential for similar products to be sold in India. In the last 12-14 months, we have decided to grow this business in a big way. We are looking at entering the domestic market next year with processed foods made from vegetables. The company would like to be a niche player. There will be a process involved, whether it is cutting or pickling or pasteurizing. The market is huge but the question is that of branding and marketing. We hope to exit the agriculture business when it touches Rs300 crore in four years after our entry into the domestic market.